The nature of nuclear projects: complex, disaggregated, and high-stakes

Even amongst mega projects, nuclear power projects tend to stand apart. They are perhaps the most ambitious, costly and technically challenging in the modern world.

As a result of this, a single turnkey engineering, procurement and construction (EPC) contract is not always feasible or desirable, and projects may instead be disaggregated into several major work packages. This procurement strategy reflects the unique challenges of nuclear energy: it is rooted in the complexity, specialisation and regulatory stringency which are inherent in the sector.

We explore below the reasons why a disaggregated model may be chosen, the potential challenges that it can bring, and the ways in which those challenges can be mitigated in practice.

Complexity: managing risk and expertise

The technological sophistication of nuclear facilities demands a wide array of highly specialised skills across multiple disciplines, from reactor design and civil engineering to radiation shielding and instrumentation control. Often, one contractor does not possess the capabilities or resources to deliver all these components to the necessary safety and quality standards.

By breaking the project down into distinct work packages – such as civil construction, reactor systems, turbine buildings, and specialist equipment and facilities (including auxiliary safety systems) – Owners/Employers can engage contractors with targeted expertise. This compartmentalisation helps to improve quality control, project oversight, and accountability, while allowing the Owner/Employer to directly manage key interfaces between critical systems.

Such disaggregation can serve multiple purposes:

• Risk management: it may be that no single contractor or joint venture can reasonably absorb the full scale of risk. Therefore, a single EPC contractor would seek to secure an aggregate cap on its liability which the Owner/Employer might likely find unattractive if (as would be the contractor’s intention) the cap was to cover all liabilities in respect of the project as a whole. Disaggregation would permit each contractor to agree a lower limit referrable to its work package, whilst allowing the Owner/Employer to have several liability caps which (when added together) amount to a higher overall sum for the project.

Similarly, a single EPC contractor tasked with delivering the whole project would invariably seek to build a risk premium into its pricing, and so the overall price for delivery of the project as a single EPC contract may be higher than the total of the disaggregated prices.

• Financial prudence & pricing of risk: insolvency risk is distributed across multiple parties and so the project is not tied to the financial fortunes of just one entity.
• Flexibility and resilience: if one contractor fails (or fails to perform), project-wide disruption is reduced, and the other aspects of the project can be progressed in a largely unaffected manner.
• Security instruments: bonds and performance guarantees may be easier to procure on a per-package basis as the secured liabilities will be more manageable for (and procurable from) both parent companies and the bond and surety market generally.

However, with these benefits comes a trade-off: more interface risk to manage.

Key legal challenges

From a legal perspective, disaggregated procurement demands careful contract drafting and coordination. Key issues include:

• Interface risk
  • Poor coordination between packages can lead to delay, for example in the handover of part of the site from one package to another.
  • Blame-shifting may occur, for example where there are design clashes or site access is limited.
• Programme and delay claims
  • Inaccurate, inconsistent or late programme updates between packages can be a breeding ground for claims – one contractor may blame another if it receives incorrect programme information that, for example, causes it to mobilise too early or work less productively.
  • Similarly, parties at the interface may point to one another when seeking extensions of time or disruption costs.
• Responsibility for defects
  • Pinpointing liability for a defect at a work package boundary can be challenging in practice. Clarity in the contract documents, and in particular in the definition of the scope, will assist, but technical investigations into the underlying cause of a problem may still be required.
  • The Owner/Employer may become involved in separate disputes against different contractors, and conflicting evidence in each case (we discuss the potential joinder of related disputes below).
• Pricing and entitlements
  • Contractors engaged on a longer-term basis will want to negotiate a price escalation procedure to combat inflation risks in respect of labour and materials. There may also be a need for long-lead procurement of reactor components, necessitating the need for advance payments (to cover the cost of the relevant suppliers), and/or the novation of specialist suppliers to the contractor on non-back-to-back terms (if the supplier, who will be in a different negotiating position, refuses to agree similar terms to the contractor). This may require carve outs to be negotiated in certain works package contracts.
  • On the other hand, Owners / Employers (and their funders) will want to ensure some level of price certainty by seeking to curtail compensation events and other routes to loss and/or expense. This is particularly the case in the nuclear sector, where cost and time overruns have historically been commonplace.
• Licensing and regulatory risk (including political risk and change in law)
  • The responsibility to comply with complex licensing requirements, procedural and substantive, can be contentious, and of the wholesale flow down of risk may be resisted.
  • This is particularly so for long-term work package contracts, which have an increased exposure to macro-economic, political or regulatory change. A change in law provision will likely be sought by the supply chain.
• Dispute fragmentation
  • Disputes may end up in different forums, for example if the project is in a jurisdiction which has compulsory adjudication and separate adjudication claims are brought by or against different contractors, or if arbitration is the ultimate forum of dispute resolution and there are no provisions for joinder or consolidation in the relevant arbitration clauses.
  • This risks inconsistent outcomes and unnecessary duplication of legal effort and cost.

Managing interface risk through legal structuring

• Smart procurement and contracting strategies
  • Collaborative models: consider alliancing arrangements that align incentives and promote joint risk ownership and a collaborative approach to interface risk and challenges.
  • Sensible choice of contract forms: NEC and similar forms of contract promote early warning and collaborative risk management procedures, which encourage parties to identify and address risks early, ideally before they materialise or significantly worsen. In many jurisdictions, including the UK, such forms of contract will be familiar to contractors and/or suppliers, so even forms with bespoke amendments can be easier to ‘sell’ to the supply chain.
  • Mandatory cooperation clauses: clauses requiring contractors to:
    • Coordinate with others on site.
    • Share accurate and timely programme information.
    • Update and maintain their own programmes.
    • Keep progress records that can be shared with the Owner/Employer and other stakeholders.
  • Sectional completion: defining key interface milestones to incentivise completion of interfacing packages of work by set dates that will avoid disrupting others.
  • Flow-down provisions: where possible, ensuring that coordination and cooperation obligations are passed down the supply chain, aligning the whole team’s behaviours.
  • Beware of lump sum traps: lump sum contracts can discourage flexibility and may escalate the prospect of disputes if pricing proves inaccurate. Fully cost-reimbursable models, by contrast, can lead to cost escalation, but there are ways of mitigating this risk, for example through the use of incentives or target-cost models (noting that the target cost mechanism, including any neutral bands, will be keenly reviewed from a commercial perspective).

• Dispute avoidance and resolution mechanisms

A proactive, multi-tiered dispute resolution approach can help manage interface risk:

• Interim resolution mechanisms: consider interim methods of dispute resolution, which allow for matters to be addressed (at least on an interim basis) without the parties having to fight an expensive and lengthy arbitration or court case:
• Adjudication – compulsory in some jurisdictions, including England and Wales – though in the nuclear sector, not all contracts in England and Wales are necessarily covered: s.105(2)(c)(i) of the Housing Grants, Construction and Regeneration Act 1996 excludes contracts for the “assembly, installation or demolition of plant or machinery” or the “erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery” on a site where the “primary activity” is “nuclear processing, power generation”. The specificity of the exclusion can give rise to hybrid contracts, where part of the work is subject to compulsory adjudication and part is not. In such cases, and to avoid disputes about whether the exemption applies, it may be preferable simply to agree in the contract that all disputes can be adjudicated.
• Dispute Boards – dispute Boards should be considered in jurisdictions that do not provide for an adjudication. In a Dispute Board, a panel (usually of three members, potentially from a range of relevant disciplines) will decide disputes in a timetable that is far quicker than in arbitration or litigation – often 84 days.
• Conflict Avoidance Panels (CAPs) – such panels are similar to Dispute Boards, but generally make non-binding recommendations. While the parties do not need to comply with a CAP recommendation, it can often be persuasive, and enough to unlock a disagreement before it escalates.
• Pre-agreed panel appointments: establishing a standing panel of adjudicators, Dispute Board members or CAP members (with a nominating body stepping in if the panel members are unavailable) at the outset can ensure quality and consistency, and increase the parties’ confidence in the outcome.
• Joinder of related disputes: particularly in arbitration, consolidating disputes can prevent inconsistent outcomes on related disputes before different tribunals – though practical challenges remain, for example, parties may be reluctant to agree joinder of disputes clauses, and they are not necessarily a complete solution in practice (for example, if disputes arise at different times, joinder or consolidation may prove impractical). Care when drafting such provisions is important.

Key takeaways for employers and contractors

1. Recognise interface risk early: it is inherent in disaggregated delivery models –  do not leave it unaddressed and unmanaged.
2. Structure your contracts to incentivise collaboration: use contract terms to enforce cooperation and timely communication.
3. Invest in proactive interface management: appoint dedicated interface managers or coordinators, especially for critical packages.
4. Design smart dispute clauses: ensure your dispute resolution framework reflects the complexity of the project and is geared toward early resolution of claims.
5. Build alignment across the project: flow down cooperation obligations and dispute resolution mechanisms to the subcontractors and suppliers so that all parties are aligned in approach.

Final thoughts

As nuclear energy gains momentum in the global transition to low-carbon power, legal frameworks will play a pivotal role in ensuring that these critical projects are delivered safely, efficiently, and with clear accountability. The disaggregated model of delivery reflects the nuclear sector’s deep complexity and unique challenges. For project sponsors and legal advisors alike, success depends on early strategic planning, careful attention to related contracts, and a nuanced understanding of the niche demands of nuclear construction.

Successful structuring of nuclear projects requires a proactive approach: anticipating interface disputes, crafting a legal framework that mitigates the risk and incentivises the right behaviours, and embedding coordination obligations into the project’s legal DNA.

For tailored advice on contract structuring, interface risks or dispute resolution strategies for nuclear or other complex infrastructure projects, please contact the authors.