The challenge: complex procurement structures and amplified interface and integration risk
While there are numerous examples of multi-contracted NPP procurements, many international NPP procurements remain structured as single-point EPC contracts, and we expect this to remain the case across a range of markets. However, even where a single EPC wrap is obtained, nuclear EPC contracts are typically more complex than their counterparts in other sectors. The EPC contractor – particularly where it is not the primary nuclear technology provider – may resist accepting responsibility for the whole of the works on uniform terms. The result is that it is more common on NPPs to have hybrid EPC contracts featuring mixed pricing mechanisms (such as a combination of lump sum and reimbursable cost elements), differentiated risk allocation across distinct scopes of work, and (in some cases) contractual look-through arrangements to key subcontractors for certain specialist works. This complexity is a significant source of dispute risk, creating potential for disagreement over the boundaries of pricing mechanisms, the allocation of risk for works that do not fall neatly within a single contractual regime, and the respective obligations of the EPC contractor and its subcontractors.
Where developers do adopt split-package procurement structures, they assume integration risk across disaggregated work packages and must manage both interface and integration risks between multiple contracts. Interface risk arises where the time and cost consequences of defects or delays in one package cascade through other work packages, while integration risk concerns the challenge of ensuring that separately contracted components come together to form a functioning and licensable NPP. In the nuclear context, cascading risks carry particular significance because of their potential implications for the nuclear safety case: any change that affects safety-classified systems, structures or components may trigger broader design adjustments and associated regulatory review, with consequences that ripple across the entire project. Developers should remain mindful that, given the very high capital expenditure and cost of delay on NPP projects and the comparatively low caps on liability (when assessed against the capital value of the project as a whole) in nuclear construction contracts, the potential cost of interface and integration risk is never able to be fully transferred to a contractor and must always remain a key focus both in contract design and execution.
Developers, together with sponsoring governments, are anticipating that some of these risks can be mitigated through improvements in construction processes and technology – in particular, through a shift towards small modular reactors (SMRs). SMR is a term used to cover a broad range of new NPP designs, but as the name suggests they are smaller NPPs, typically circa 30-300MWe compared with traditional NPPs of 800-1400MWe. SMRs are also designed to be constructed on a modular basis, meaning much of the plant is designed as modules (potentially including an entire reactor module) that can be constructed in factories and shipped to site for assembly. Proponents of SMR technology market these designs on the basis that they can be built faster and more efficiently, with reduced on-site interface risks. However, these claims remain to be tested at commercial scale, and early SMR projects will inevitably face significant first-of-a-kind risks — including the establishment of module fabrication facilities and the demonstration that the economic case can be sustained through the initial deployment phase. If these challenges can be overcome and SMRs are shown to be economic, they should help to achieve material efficiencies in nuclear construction.
Something we have learnt from the increased use of modularisation in other industries (e.g. in the oil and gas sector) is that modularisation can introduce a different category of risks. For example, capacity constraints in module construction facilities, shipping schedules and availability, disruption to shipping lanes, quality control in module yards and the impact of carryover works on site construction and installation works have all caused material challenges on a range of LNG and other giga-projects in recent years. These risks are exacerbated in the nuclear sector by the high levels of quality assurance, quality control, testing and traceability required under all nuclear regulatory regimes — requirements which can both amplify the consequences of quality failures and constrain the ability of contractors to work ‘at risk’ to recover construction programmes that fall behind. In our experience, the ability to mitigate the impact of delayed or out-of-sequence modules can be more limited than with traditional ‘stick-built’ construction and requires careful consideration in the drafting of the construction contracts and in the execution of the works.
Technological considerations in the nuclear sector can also add complexity in the disputes context. While many current NPP projects involve iterations on established reactor designs rather than wholly novel technology, even limited design iterations require a full review from a nuclear safety perspective. The challenge is that safety-driven design reviews can trigger consequential changes that ripple across civil, mechanical, electrical and instrumentation and control (I&C) work packages, with the potential for significant time and cost impacts. Where a project does involve a first-of-a-kind design or novel construction methodology, contractual risk allocation becomes more difficult to negotiate and the potential for design evolution and its consequential effects is correspondingly greater. Further, as these developments are taking place in the context of stringent regulatory requirements, suppliers may not have the same level of freedom to work “at risk” to mitigate delays as they might on conventional projects. As a result, minor regulatory delays can cascade through the schedule. The classic mitigation to these risks is to front-load design work so as to mitigate the risk of subsequent change or to replicate designs which have been successfully implemented in the relevant jurisdiction. These are approaches which are being adopted on a range of current NPP projects.
Finally, the degree of governmental involvement on NPP projects adds a further dimension to the landscape. On most NPP projects, a range of state-created or state-affiliated bodies are involved, each with distinct and independent mandates. Independent nuclear safety regulators assess and enforce compliance with safety standards; economic regulators may oversee aspects of project costs and consumer pricing; and government departments or state-owned entities may act as investors, funders or direct or quasi-procurers. This plurality of independent actors, each with different priorities and decision-making processes, adds complexity to projects. It can also potentially impact on dispute resolution dynamics where, for example, regulatory decisions have cost or programme consequences that become the subject of claims between project parties, or where third-party consents are required in order to implement a commercial settlement.
In short, the development of NPPs involves a complex web of stakeholders, contractual arrangements and regulatory requirements, with a level of interconnectivity and interdependency that is typically significantly greater than on projects in many other sectors. Whether a project is procured under a single EPC contract or a multi-contract structure, the development of a claims management and dispute resolution strategy requires a holistic approach that takes account of the full commercial, contractual, regulatory and financing context.
Dispute resolution clauses as a risk management tool
The starting point for an effective dispute resolution process lies in the risk identification and claims management requirements and procedures. Robust processes for risk identification and mitigation and timely issuance of notices, including the early identification of potential claims, are essential and must be applied across the entire contractual network. Where a single-point EPC contractor has been appointed, the EPC contractor must manage its network of subcontractors, each with its own performance obligations, notice requirements and claims entitlements. Developers should not assume that this is solely the EPC contractor’s problem: gaps in subcontract management can give rise to unresolved claims that ultimately surface at the project level, and the developer’s ultimate exposure to delay and cost risk means that visibility of issues in the subcontract chain is important even where the developer is not in a direct contractual relationship with the relevant subcontractor. Back-to-back and flow-down provisions require careful attention: gaps in notice periods, limitation provisions or claims-related requirements can leave a developer blind to risks and an EPC contractor unable to pass through liability, albeit that any such liability will always be commensurate with the value of the relevant subcontract.
Developers, EPC contractors and subcontractors all benefit from embedding claims management as a proactive discipline rather than treating it as a reactive exercise, particularly where claims are likely to involve multiple parties or contracts. Issues flagged early through good project controls and early warning mechanisms are less likely to escalate into formal disputes. Parties exploring alliance-style contracting models – whether solely though gain-share and pain-share arrangements or under more “purist” models that limit the right to bring claims – should recognise that the collaborative ethos of an alliance is not a reason to delay or avoid raising issues and, in fact, a well-run alliance is built on the principle of open discussion and resolution of issues before they become problematic. On complex NPP projects, proper claims management is not inconsistent with a collaborative model; it is essential to it.
Once a claim has been identified, there will almost always be extensive discussions and attempts at resolution at a working level before any formal process (arbitration or otherwise) is engaged. Many commercial disagreements on NPP projects are resolved through day-to-day project management, negotiation and pragmatic compromise, and this should be encouraged. Where working-level resolution is not achievable, a structured escalation process is valuable: senior management escalation with defined response windows can often break deadlocks; technical issues may be suitable for independent expert determination; and formal arbitration should be reserved as the backstop for disputes that cannot be resolved through earlier tiers.
Multi-tiered dispute resolution mechanisms – combining standing dispute boards, expert determination and formal arbitration – are well suited to the scale and technical complexity of NPP projects. These mechanisms should be designed with the realities of the project in mind, ensuring that related claims across the contractual chain can be addressed coherently rather than in isolation. Standing dispute boards are rightly attracting increased attention. We are seeing parties on NPP projects establish panels with differing expertise – sometimes with permanent chairs – so that suitable decision-makers are always available and can be matched to the nature of the dispute as it arises. Boards can also be constituted to address categories of recurring claims, such as disputes over damaged equipment or modular component quality, enabling faster resolution without diverting project management resources to formal proceedings. The standing nature of these boards fosters familiarity with the project and enables more informed decision-making. Still, parties should avoid overly restricting their future choices and should build in sensible mechanisms for refreshing board membership over the course of a lengthy construction programme.
In certain circumstances, resolution of a dispute before a dispute board or technical expert will not be appropriate, or arbitration may be necessary as a fallback in the event a party is dissatisfied with a determination. Arbitration rightly remains the preferred default method for resolving disputes on NPP projects. Its advantages are well known:
- neutrality where state entities are involved;
- the ability to appoint tribunals with the necessary legal and technical expertise and, where required, security clearance;
- confidentiality where disputes concern politically sensitive matters, proprietary technology or national security;
- worldwide enforceability under the New York Convention, which is particularly important given the multinational nature of nuclear supply chains; and
- arbitration’s ability to be deployed as the cornerstone of a multi-tiered dispute resolution process to allow parties to resolve disputes quickly and efficiently as and when they arise without derailing project progress.
Arbitration also offers the procedural flexibility needed to address complex multi-party and multi-contract claims effectively. Whilst multi-party and multi-contract situations historically presented challenges for arbitration, most leading institutional rules now contain sophisticated provisions for joining additional parties and consolidating related arbitrations. Whilst the mechanics of joinder and consolidation in different institutional rules are broadly similar (and beyond the scope of this article), there are important differences which parties should be alive to and which can impact the ability of a party to join or consolidate ongoing arbitrations. Involving experienced arbitration and sector specialists when negotiating these provisions is essential.
For present purposes, three key takeaways that parties should proactively consider when drafting the joinder and consolidation framework at the point of contracting are as follows:
- First, where contracts contain different arbitration clauses, different institutional rules or different seats, the ability to join related claims in a single proceeding may be severely limited, if not impossible. The general and sensible approach is therefore to draft arbitration clauses consistently across related contracts.
- Second, even where the same arbitral institution is used, joinder and consolidation typically require either the consent of all parties or the satisfaction of specific institutional thresholds, such as common transactions or common questions of fact or law. The easiest route to consolidation is always through consent, but seeking consent once a dispute has arisen is significantly harder, as parties will inevitably assess joinder through the lens of tactical advantage rather than project efficiency. Recording consent at the outset in the arbitration clause is almost always a good idea.
- Third, flexibility must be balanced against finality and efficacy of the arbitration process. Overly broad or complex joinder and consolidation provisions can risk challenges to the tribunal’s jurisdiction or award enforceability, particularly in jurisdictions with a narrow approach to multi-party arbitration. Further, joinder and consolidation can lead to parties being restricted in the appointment of an arbitrator of their choice – an important benefit of arbitration. And while joinder and consolidation can lead to efficiency, adding parties or cases can make proceedings more complex and costly, introducing unnecessary procedural hurdles and potentially making settlement more difficult to achieve.
Confidentiality can also present a challenge on multi-party NPP projects, which rely on specialised technology providers whose proprietary designs are fundamental to the project’s success. In multi-party proceedings, different counterparties may hold different confidentiality entitlements, and regulatory and export control restrictions can limit the flow of documentation to counsel, arbitrators and institutions – in particular in consolidated proceedings. Arbitration is well placed to handle confidentiality concerns as parties can craft bespoke information-sharing protocols and restrict access to sensitive materials. Parties and tribunals can deploy confidentiality rings, escrow arrangements and/or confidential/private hearings to manage the intersection of commercial confidentiality with regulatory and export control restrictions – measures that can be considerably more difficult to implement in court proceedings typically open to parties and even the public.
Finally, but importantly, parties should also be mindful of mandatory dispute resolution requirements that may apply by operation of law and which operate alongside or interact with contractual dispute resolution mechanisms. For example, in the United Kingdom, the statutory right to adjudication under the Housing Grants, Construction and Regeneration Act 1996 cannot be excluded by contract (albeit there is a carve-out for certain works at nuclear sites), and a party may refer a dispute to adjudication at any time regardless of whether contractual pre-conditions (such as negotiation or dispute board referral) have been satisfied. This can result in carefully designed multi-tiered escalation processes being bypassed. Adjudication decisions are binding and enforceable pending final determination by arbitration or litigation, operating on a “pay now, argue later” basis. That mechanism can be a powerful tool for maintaining cash flow and ensuring that disputed sums do not remain locked up for the duration of lengthy proceedings, but it also means that interim payment or performance obligations can materially alter the commercial dynamics of a dispute and influence the parties’ respective positions in any subsequent arbitral proceedings. It is crucial that these mechanisms are factored in when designing the overall framework.
The key takeaway for stakeholders on NPP projects is that dispute resolution is not simply a forum choice – it is a risk management tool. But it is most effective when it is engineered into the project from the outset, designed to address the unique characteristics of NPP projects, and supported by the claims management practices needed to keep disputes from derailing project delivery. For developers, EPC contractors and subcontractors alike, investing in claims management and dispute resolution design at the front end of a project is one of the most practical steps available to manage the risks inherent in the nuclear renaissance.
This article forms part of our Arbitration Agenda review of 2026 trends.
