Equipment failure late in commissioning: the contractual questions

The Waratah Super Battery in New South Wales is an 850 megawatt, 1,680 megawatt hour system built by Akaysha Energy at the former Munmorah Power Station site, procured by EnergyCo to operate as a network shock absorber. It has been publicly reported that two large transformers were damaged during final testing, with one described as beyond repair, and that a replacement transformer was scheduled for delivery in the third quarter of 2026, with full operation expected during 2026. An interim service of 350 megawatts and 700 megawatt hours has continued in the meantime.

Nothing in this article suggests fault on the part of any party. The public facts are useful for a different reason: they show how an equipment failure late in commissioning reaches several contracts at once, and which drafting decisions determine where the loss lands.

Completion and the definition of the milestone

Most delay disputes on energy projects are not about whether an event happened. They are about which milestone it affected. A failure during final testing sits between practical completion and commercial operation, and those two are often defined by reference to different tests, different evidence and different consequences.

Where a project also has a regulatory or network milestone, such as full performance under a connection agreement, there may be a third date that moves independently of the other two. Contracts that define each milestone by reference to the same test regime produce far fewer arguments than those that do not.

Where the risk sits in a split scope

Under a wrapped EPC contract, the contractor generally carries the consequences of equipment failure, subject to its caps. Under a split structure, the position depends on which package the item sat in, who specified it, who installed it and who was responsible for the tests it failed. Questions worth asking of any split scope suite:

• Which package supplied the item, and which package was responsible for the test being performed when it failed?
• Does the interface deed allocate responsibility for a failure occurring at the boundary between packages, or does it assume each contractor is separately liable to the principal?
• Do the contractors have consistent extension of time entitlements, so that a delay caused by one does not create a principal caused delay under the others?
• Is the liquidated damages cap set per package, and if so, what is the principal's aggregate exposure to delay it cannot recover?
• Who bears the cost of care of the works and reinstatement while a replacement item is manufactured?

Replacement lead time as the real risk

Large power transformers are long lead items. The delay consequence of a failure is usually driven by the manufacturing and delivery queue, not by the repair itself. That has several contractual implications.

Extension of time regimes drafted around ordinary weather and site delays often deal poorly with a twelve month equipment lead time. Liquidated damages regimes calibrated to a few weeks of slippage can be exhausted long before the plant is available. Spares strategies, which are a commercial decision made years earlier, become the single most important determinant of outcome.

Insurance, and the gap between policies

An event of this kind typically engages construction and erection all risks cover for the property damage, and delay in start up or advanced loss of profits cover for the revenue consequence. Those are usually written on different terms, with different deductibles and different definitions of the insured period.

The gaps that cause difficulty are familiar: whether the loss occurred during the testing and commissioning period as defined, whether defective design or workmanship exclusions apply to the item or only to the defective part, and whether the delay in start up indemnity period runs from the contractual completion date or the date the plant would otherwise have been available.

The downstream contracts

A completion delay does not stay inside the construction suite. It reaches:

• Offtake and network support agreements, where availability obligations and the service commencement date may each be affected differently.
• Financing documents, where a long stop date, a revenue covenant or a completion test may be engaged.
• The connection agreement, where performance standards and a commissioning programme have been registered.
• Any interim or partial service arrangement, which needs to be capable of being varied without disturbing the full service obligation.

The general point is that these consequences are decided long before the event, when the suite is drafted. Alignment between the construction milestones, the offtake commencement mechanism, the insurance period and the financing long stop is worth checking while there is still time to change it.

Sources

• EnergyCo NSW, Waratah Super Battery Project
• Akaysha Energy, Waratah Super Battery