Over the past decade, Australia’s energy sector has witnessed a fundamental shift in how large-scale projects are contracted and delivered from traditional full wrap to split contracting models to hybrid models, reflecting the increasing scale of energy projects, evolving principal / contractor risk appetites and lessons learned from recent project challenges.
This article is the first instalment of our three-part series exploring the market trends and key drivers shaping this evolution, before turning to practical implementation considerations and the emerging developments that will guide the future of project contracting in Australia’s energy sector.
Full-wrap EPC to split and hybrid contracting models
Full-wrap EPC contracts were the default position for large-scale energy projects, particularly in solar, wind and hybrid developments. This provided a single point of accountability, simplified claims management and defect rectification process. However, over the past three to five years, several key drivers evidence the growing departure from full-wrap to split and hybrid contracting models:
- Project scale: Mega-projects exceeding 1GW capacity and nearing $1 billion budgets have become increasingly common,[1] often exceeding individual contractor balance sheet capacity and risk appetite. Few contractors in the Australian market possess the financial capacity to underwrite full-wrap risk on projects of this magnitude. Those that do have become increasingly selective in the opportunities they pursue.
- Supply chain disruption: Global equipment procurement challenges, exacerbated by pandemic-era disruptions and ongoing geopolitical tensions have made contractors unwilling or unable to guarantee delivery timelines. Extended delays can substantially affect the viability of a project.[2]
- Margin and security escalation: Contractors demanded higher margins and securities to compensate for the risks associated with full-wrap delivery. Higher risk premiums threatened the commercial viability of developments.
- Contractor insolvency events: Recent failures of major construction firms highlighted the inherent risk where a single contractor’s financial distress can jeopardise an entire project,[3] prompting principals to spread their exposure across multiple counterparties as a risk mitigation strategy.
- Principal capability development: Larger developers and independent power producers built sophisticated internal project management and technical capabilities, enabling them to manage interface risk directly rather than paying a premium for third-party coordination.
- Cost optimisation: Engaging specialist contractors for specific work packages often results in material cost savings compared to full-wrap pricing, as principals can avoid the high risk margins and contingencies that typically accompany a single-point accountability model. As larger projects, on average, incur double the cost overruns compared to smaller projects, higher risk premiums further eroded investor confidence.[4]
Hybrid models allow for a more tailored risk profile than full wrap or split contracting. For example:
- Principal procurement with EPC installation: Principals directly procure long-lead equipment and free issue to an EPC / balance of plant contractor who wrap installation and commissioning works.
- Self-performing IPPs / Project owners: A principal with in-house project delivery and construction capacity contracts internally to reduce traditional costs associated with project development, such as risk margins, and contracts externally for the balance of the works.
Key risks that have emerged
Our experience with delivered and ongoing projects with split and hybrid contracting models has revealed several critical risk areas that warrant careful consideration:
- Interface management and claims: Determining responsibility for delays and defects is arduous when work is split across multiple contractors, and particularly where there are upstream performance, grid and connection risks where responsibility cannot be pinned on one party. Disputes over causation and liability at interface points can escalate quickly, often requiring detailed forensic analysis to resolve.
- Registration and licensing: Multiple contractors each requiring head contractor registration can create administrative complexity and potential coverage gaps, with principals needing to carefully verify that all regulatory and licensing obligations were satisfied across each work package to avoid compliance exposure.
- Commercial Operation Date (COD) liability: Establishing delay liability and calculating liquidated damages may become significantly more complex when multiple contractors contribute to COD milestones, requiring carefully drafted apportionment mechanisms, clear milestone criteria and alignment to maintain accountability.
- Financing and bankability: Lenders may express discomfort with fragmented responsibility and the complexity around step-in rights across multiple contractor arrangements, sometimes requiring additional securities or credit support that erode the cost benefits otherwise achieved through a split or hybrid structure.
These concerns are manageable with appropriate contractual structures setting out clear risk allocations and robust project management, to be discussed by other articles in this series.
Future market trends and observations
The shift from full-wrap to split and hybrid contracting models has not been uniform across the market, with the approach adopted often correlating closely with project scale. Smaller projects show considerable variation in contracting strategy, with some principals still favouring full-wrap arrangements where contractor risk appetite exists.
By contrast, mega-projects exceeding 1GW benefit from a segmented approach, reflecting the practical reality that few contractors are willing or able to assume full-wrap risk at that scale. At the same time, contractor market consolidation following a series of high-profile insolvencies has materially reduced competition, conferring increased negotiating power on the remaining participants regardless of the contracting model adopted.
In this environment, principals with strong internal project management and technical capabilities have the opportunity to pursue hybrid models that balance meaningful cost control with appropriate risk transfer to contractors in areas where they add the most value. [5]
Conclusion
The Australian energy market’s evolution in contracting models reflects hard-learned lessons from delivered projects, contractor failures, and supply chain challenges over the past decade. In practice, we anticipate a shift towards more hybrid contracting models, allowing principals to retain control over critical elements (particularly equipment procurement) whilst engaging contractors for areas where they add most value. Understanding the market drivers behind the shift provides essential context for examining the practical implementation considerations and emerging developments explored in the subsequent articles of this series.
[1] Gia Snape, ‘The rise of the megaproject: Why construction’s new scale demands more from brokers and carriers’ , Insurance Business Mag (Webpage, 14 November 2025) < https://www.insurancebusinessmag.com/nz/news/construction/the-rise-of-the-megaproject-why-constructions-new-scale-demands-more-from-brokers-and-carriers-556529.aspx>.
[2] Oxford Economics Australia, 2025 IASR Planning And Installation Cost Escalation Factors (Report for AEMO, February 2025) 29.
[3] Michael Janda, ‘Probuild, Monaco Hickey, WBHO Infrastructure in administration after tradies ordered off building sites’, ABC News (Webpage, 24 February 2022) < https://www.abc.net.au/news/2022-02-24/probuild-monaco-hickey-wbho-administration/100856406>.
[4] Infrastructure Australia, A National Study of Infrastructure Risk (Report, October 2021) 10.
[5] Richard Long, ‘Should Owners Furnish Construction Items?’, Long International (Webpage, 20 September 2024) <https://www.long-intl.com/blog/should-owners-furnish-construction-items/>.
