Millie Farmelo: Industry can use influence in and out of contracts

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Arup solicitor tells global webinar that sustainable clauses in contracts must be achievable but that firms should walk away from unsustainable projects. 

Millie Farmelo, a solicitor with Arup, has told a global audience that contracts need to offer greater flexibility and that companies also have to take full responsibility and even reject unsustainable projects.

Speaking about the need to manage the adoption of climate clauses into contracts, Ms Farmelo explained that although capturing sustainability intentions within contracts is important to establish accountability – there were challenges arising from how it is done.

“It is important to ensure that if we are required to comply with these types of obligations, that they are realistic, appropriate, and achievable when considering the scope of services. And what we’re beginning to see within our contracts that we’re getting from the clients is that there are very heavy-handed ways of risk transfer – so quite unsophisticated, quite client-driven blunt mechanisms within the contracts serving as a stick to achieve certain outputs. For example, quite onerous KPIs that are linked to liquidated damages.”

“It’s often the case that these net zero clauses are shoe-horned into the contract and they’re quite ill-conceived, quite optimistic, and imposed without proper consideration of what is achievable.”

Working collaboratively with clients and industry
Ms Farmelo then stressed that responsibilities span more than contracts.

She said: “Outside of the contract conditions, we do have the expertise to influence the project at an operational level. So using our experience, we should be considering at the earliest possible moment – but also at any point throughout our services – what we can do and whether there are opportunities for us to discuss climate change with client, in an attempt to spot how we can add value to the project by sharing ways we can deliver our services in a more sustainably and circular way.”

She stressed that in Arup’s experiences, getting this right had enhanced relationships with clients, helped those clients to meet their own obligations from green financing and led to a closer working relationship between Arup and clients.

“We should be aspiring to shape the industry norm, to shape standard practices and industry contract forms, building a common understanding and a consistent approach to delivering low carbon solution. We can think about doing that via certain roles. So those roles that have oversight of an entire projects, such as a project manager, might have the ability to oversee the project from start to finish and can essentially be a guardian of a system that ensures common objectives are included throughout the project,” explained Ms Farmelo.

 In addition to that, she said companies could work with industry institutions like FIDIC and the Chancery Lane project, which brings together lawyers and technical specialists to find solutions. “Working together to do this type of work we can develop the type of clauses that we want to start seeing in contracts and ensure that they work for everyone.”

When that doesn’t happen
Ms Farmelo then addressed the difficult subject of projects that don’t align to climate ambitions.

“We need to be asking ourselves can we do things better. Arup is involved in the construction innovation hub value toolkit which is being developed in the UK market and aims to change the driving force behind decision-making to shift the focus from costs and time to a more value-based approach. The intention is to ask the question early on ‘what are we doing here, and how are we going to tackle this?’.”

Then she stressed that there should be consequences when projects aren’t right. “If we aren’t able to influence the client and we’re not able to influence the supply chain then we should be considering walking away from projects that do not comply with UN sustainability goals.”

“That is something Arup is committed to do with jobs that involve extraction, refinement and transport of hydrocarbon-based fuels going forward.”

Millie Farmelo was speaking at the FIDIC global webinar: “Greening FIDIC’s Rainbow Contract Suite”, which is part of the 2022 global webinar series.