2021 – Regulatory risk – a proposed framework for contractual accountability of the Crown of regulatory changes

Arnold Dix

Regulatory risk for large civil engineering projects such as dams and hydropower schemes can be larger than the engineering risks. The seriousness of project regulatory risks is rarely acknowledged publicly and almost never dealt with contractually. The recent adoption by the World Bank of the FIDIC/ITA Emerald Book contractual framework introduces geotechnical baseline reports as a contractual mechanism for managing ground risk in World Bank hydro projects. Regulatory risks created by government agencies and utilities due to changing project requirements can likewise be managed by adopting the concept of geotechnical baselines to regulatory impositions as a baseline report.

Government agencies changing regulatory burdens mid project can fairly be held accountable for the
burdens of those changes by establishing regulatory baselines at the earliest stages of a project. By
contractually embedding regulatory risk baselines, governments and their agencies can adjust their
payments to reflect the changed cost in delivering an agreed project caused by regulatory changes. In this way the compensation for delivering a project more closely aligns with its value and cost. A regulatory baseline report in reducing project exposure due to regulatory change driven costs is a new tool in more efficient and competitive project delivery.

A transparent mechanism for costing regulatory change risk and apportioning it in accordance with pre agreed mechanisms, is an innovation of great use to the dam and hydropower sector.