The construction industry within the transport sector | Major changes - great opportunities

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The draft Norwegian Transport Plan will be finalised by Parliament in the spring. If all proposed projects are adopted, the Norwegian government will be spending more than NOK 900 billion on transport over the next 12 years. For companies operating in this sector it is, however, not necessary to wait for Parliament’s final decision. Many projects have already been approved for Development and many contracts shall be awarded in 2017 and 2018. This became apparent during an industry information meeting held by Bane Nor, Nye Veier AS and the Norwegian Public Roads Administration (“NPRA”) in Oslo 9 February 2017. The total scope of the projects to be commenced over the next two years can be breathtaking for most.
Monday, March 6, 2017

The five regional managers of the NPRA presented several projects that amounts in total to well over NOK 30 billion in contracts to be concluded in 2017-2018. Nye Veier AS presented projects that in total are estimated to NOK 60-80 billion, of which several shall be initiated during 2017 - 2018. Bane Nor’s investment and development volume for the period 2017-2023 was reported to be about NOK 130 billion, where NOK 10 billion and NOK 12,3 billion is allocated to respectively 2017 and 2018.

For all practical purposes it can be said that the projects are spread across most of the country and the size of the projects varies. There will be plenty to do for both local, regional and national contractors.

There are many development trends that can be highlighted, but an umbrella term is “modernization”. The three state owned builders have a clear goal to modernise the industry and the industry players’ way of thinking, working and interacting. This applies to the investment projects but also to the operational contracts.

Already in its review of the eligibility requirements it is clear that the state owned builders want to tackle labor crime. In the future, contractors will have to have a minimum of 50% skilled labor and at least 4-7% of the employees must be apprentices. Moreover, stricter requirements are imposed in relation to safety, health and working environment plans (SHA)/internal compliance. It will not be sufficient for the contractors to have such procedures “on paper.” A focus for the state owned Builders are that these procedures are to be properly implemented and in active use. Strict standards are also imposed for good corporate governance (compliance). The common denominator is that the individual contractors must be able to document fulfillment of the requirements in the prequalification.

Within SHA the builders especially emphasised the fact that one has now moved away from “zero vision” as far as work accidents are concerned – hereinafter it is the “zero acceptance” that shall apply.

With increasingly stringent requirements in relation to the number of contracting parties in the supply chain below the main contractor/design and build contractor, these requirements will impose equally strict consequences on subcontractors. There is little use if the main contractor/design and build contractor is in compliance if the subcontractors are incompliant. Similar challenges arise in case of the establishment of a working partnership or a joint venture. Before such cooperation is initiated, both parties should carry out thorough and systematic evaluations of the other.

Traditionally, projects within the transport sector have been carried out as Design-bid-build contracts where the client designs and the contractor executes the work. In recent years, the state owned builders have utilised other contractual models. Two major projects on Helgelandskysten are executed as Development contracts where there is considerable interaction between the builder client and the contractor, whilst Nye Veier AS has successfully developed a standardised set of special contractual provisions adapted to NS 8407 (Design-build contracts). NPRA has already completed some smaller Design-build projects and the clear signal is that the authorities will use the Design-build format in far more (and larger) projects in the coming years. Several of the presented projects for 2017-2018 are planned to be Design-build contracts.

In this regard it should also be mentioned that the clear message (especially from Nye Veier AS) is that the state owned builders want interaction with early involvement and ideally before the building sites are regulated. This is a very exciting development that will place considerable burdens on the parties. For the contractors, it will also involve far greater cooperation with other players, both within the consulting industry and with other contractors, to be able to handle large contracts.

Competition from international players is already a reality in Norway, and the government welcomes this development. With the scale of large contracts that are now in the pipeline there will probably be more than enough for everyone. As a result of this development, however, we believe that Norwegian contractors should adopt a proactive approach towards foreign contractors and seek cooperation rather than competition where this is possible from a legal perspective, and desirable from a Commercial perspective. Although international contractors have sufficient expertise and resources to undertake far greater projects than most Norwegian contractors, we believe the government’s increased focus on SHA, compliance and corporate responsibility, as well as Norwegian climatic conditions, is forcing more cooperation between Norwegian and foreign players.

As a result of these changes it becomes even more important to recruit legal expertise with sound industry knowledge. Steenstrup Stordrange has expertise within all legal disciplines and extensive experience within the construction industry. As the only law firm with offices in all regions in Norway we also have good opportunities to provide support to contractors at the sites where the production takes Place.

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