Asset resilience in the face of climate change: How extreme weather events may lead to disputes on major construction projects

In the first in a series of blog posts exploring the potential impacts of climate change and energy transition on global projects disputes, we consider how extreme weather events will test asset resilience and how this may increase the risk of disputes on major construction projects.

According to a recent IPCC report, climate change is already increasing the frequency and intensity of extreme weather events, such as heatwaves, heavy precipitation, droughts and tropical cyclones, across the globe.  Among other things, the view of the report’s authors was that it was virtually certain that hot extremes (including heatwaves) had become more frequent and more intense across most land regions since the 1950s.

Extreme weather events, and the uncertainty surrounding them, have the potential to test the resilience of assets in a way that they would never otherwise have been tested. For example, offshore installations may be susceptible to storms, and high temperatures may cause roads to soften and expand. The Portland Streetcar and MAX light rail network in the United States, for example, were forced to suspend services in June 2021 as high temperatures caused power cables to melt. In 2015, Qatar received a year’s worth of rain in several hours, resulting in leaks at the recently-completed Hamad International Airport.

Even where weather does not halt the operation of infrastructure, it can have a severe impact on operability, especially in respect of aging infrastructure such as London’s rail network, where speed restrictions are regularly imposed during hot weather due to rail expansion and the risk of buckling. 

Defects

Extreme weather events may cause or worsen defects that may not otherwise have arisen and/or been uncovered, resulting in claims being brought against contractors and construction professionals.

We may also start to witness more claims based on alleged negligence or breach of the standard of care, for failing to account for the effects of climate change in design and construction. 

Performance

Extreme weather also has the potential to negatively impact asset performance. For example, very high temperatures can prevent a solar farm from operating efficiently, and very strong winds may necessitate the shutdown of wind turbines.

There is potential for disputes to arise where the expected output is not met, especially where warranties and assurances have been given relating to the operable conditions of the asset. A failure to meet the expected output may also impact the financial viability of the project.

Design standards

How should design standards account for these issues? How can the increased frequency and intensity of extreme weather events be sensibly captured in a standard?

Industry standard engineering tolerances may need to be reviewed to ensure they account for more extreme conditions. More crucially, it may be necessary to rethink the standard of care applied to professionals and the extent to which they will be expected to design for extreme weather events.

Conclusion

We can expect to see a rise in disputes in the mid to long term as asset resilience is tested by climate change. The best approach for parties involved in major projects is to ensure that the asset being constructed is able to withstand the impacts of climate change, both now and in the future. However, this is not a straightforward task. Parties should also be mindful of the potential impacts of climate change on asset resilience when considering contractual risk allocation.

This is part of a series of blog posts exploring the potential impacts of energy transition and climate change on global projects. Click here to see other posts in the series.