The electric vehicle (EV) market is at a tipping point. Reduced fuel costs and government incentives have made leasing or purchasing an EV significantly more appealing to consumers. At the same time, technology is advancing, and battery costs, which account for nearly half the price of new EVs, are falling drastically.^[1] With these shifts, BloombergNEF’s Electric Vehicle Outlook 2024^[2] shows adoption moving “from being policy-driven to being driven by consumer demand across all markets.”^[3] In the United States, many consumers intend to purchase an EV for their next vehicle.

To meet increased consumer demand, large automakers are investing billions of dollars into building new EV manufacturing plants. These plants, sometimes called metaplants, are sophisticated multi-structure facilities that mass produce EVs. Building them entails complex construction systems and processes. And with these complexities comes the need to effectively manage high-stakes risks with robust contract administration and project management programs.

With many stakeholders in the mix and major investments on the line, EV plant construction calls for a re-energized focus on proven risk management strategies.

Although risk management is vital for avoiding cost overruns, delays, and disputes in all types of construction, the need is pronounced with these costly, complicated projects. With many stakeholders in the mix and major investments on the line, EV plant construction calls for a re-energized focus on proven risk management strategies.

What Makes Metaplants Unique

Building metaplants differs significantly from other large construction projects. What makes these projects most unique is their massive scale and complexity. EV plants are not just immense buildings, they are essentially building complexes with many different production facilities for various vehicle components under one roof. Manufacturing lines and production processes for individual vehicle parts, such as the drivetrain, chassis, and battery, are very specific, and each component must meet exceptionally strict tolerances and standards. These exacting systems also need to communicate with one another to assemble the parts in a synchronized manner and produce the final product.

At HKA, our team has firsthand experience consulting on risk management and dispute resolution for the design, construction, and contracting of large EV plant construction projects.

The involvement of various stakeholders adds an additional layer of complexity. These stakeholders may not be familiar with EV vehicle assembly, and foreign owners and investors may not be accustomed to standard building practices in the United States. This reality requires a concerted effort to ensure everyone is aligned on what contractors will deliver in terms of both performance and project administration. Together, these factors take construction projects to another level.

Key Risk Management Strategies for EV Plant Construction

As automakers plan more EV plants throughout North America and worldwide, engineers, contractors, construction managers, and owners must double down on risk management and contract administration.^[4] At HKA, our team has firsthand experience consulting on risk management and dispute resolution for the design, construction, and contracting of large EV plant construction projects. Through this experience, we have identified highly effective strategies and practical steps for proactively mitigating risks on projects that are inherently rich with exposures.

Each project and each situation will be unique, requiring a holistic evaluation of the specific circumstances of every engagement.

Initial Assessment

As construction becomes more sophisticated and potential risks escalate, it is increasingly important for stakeholders to thoroughly evaluate several core aspects of the project upfront.

• Understand all goals. This evaluation should start with the end in mind. In other words, all parties need to understand the project’s goals. This includes big-picture goals and timeline, financial, and risk goals so everyone can plan accordingly.

• Know the players and project structure. Many EV facility construction projects in the United States involve American contractors working with foreign entities. Understanding the project stakeholders and planning around cultural differences or ways of working that may impact the project’s dynamic support productive communication and working relationships from the get-go. It is also important to understand the contract relationships and how risk is allocated among them.

• Identify current and potential risk points. Reviewing the design or construction parameters laid out in the contract may help identify specific risk points. Is there a shortened time frame for design or submittal reviews? Is there readily available labor to perform the required work? How much experience do the designers or contractors have in the given market or location? Is there sufficient lead time for bespoke or customized equipment? Knowing where risks may be lurking and mobilizing accordingly is critical for minimizing potential damages, claims, and disputes down the line.

Each project and each situation will be unique, requiring a holistic evaluation of the specific circumstances of every engagement.

Contract Provisions

Despite the pressure and urgency of EV projects, stakeholders must take the time at the outset of their engagement to fully understand the obligations, commitments, and agreements defined in the contract. Getting familiar with this playbook ultimately informs how to best strategize around and manage risk. This should include a special focus on: 

• Work scope, including the scope for other parties
• Notice requirements
• Coordination protocols
• Contract administration and reporting
• Time extension provisions
• Change order requirements to support scope change costs

“Let’s not deal with a problem we don’t have” is a dangerous way to operate in this construction market. Changes are bound to happen. It is much more advantageous to have a solid understanding of how those changes should be managed before they occur so delays and cost increases can be negotiated equitably sooner rather than later.

Risk Warning Signs

Once work is underway, spotting risks early is one of the best ways to prevent or mitigate issues that arise quickly. The following are indicators that something bigger could be at play. While observing one sign does not guarantee there will be a challenge ahead, it may indeed warrant raising a red flag, especially considering the combined impact of multiple simultaneous issues.

• A large number of change orders – Sometimes, changes are due to legitimate owner requests. Other times, they may signal that the contractor is misunderstanding the scope, that the contract does not clearly communicate the contractor’s expectations, or that the design is the issue.

• Evident disproportion of cost versus work scope – If project costs are increasing and the performance or earned value of the work is not increasing at the same rate, it is time to take a closer look at what is happening.

• Unproductive workers – A spike in overtime or people walking around the job site without work often points to unforeseen delays that could cause labor productivity issues.

• Overcrowded work conditions – Multiple trades working in close quarters, such as electricians, plumbers, and drywall installers working in the same space at the same time, may be a sign that work is trying to be accelerated. This can also be another sign of labor productivity loss.

• Labor or management turnover – Workers or managers continually coming and going on the project raise questions about skill level issues, proper management, and the general labor climate in that location. It also means there could be a learning curve that impacts productivity and the project timeline.

• Excessive design changes – Design issues do not always mean the designer is at fault. Changes can stem from other sources, such as the owners changing their minds and adjusting the design mid-project or contractors encountering differing site conditions. Either way, they can create a ripple effect that ends up being more significant than anticipated.

• Unanticipated weather – Unforeseen or excessive bad weather can significantly impact project plans. For example, an extended rainy period may delay the pouring of concrete foundations and require creative solutions to keep the job on track.

Once work is underway, spotting risks early is one of the best ways to prevent or mitigate issues that arise quickly.

Recording any such changes is a best practice. We always tell our clients that it is just as important to record when the work is going well as when it is not. At the very least, reporting work when it is going well can provide a baseline of understanding. Should a claim or dispute arise, these records are invaluable in determining the cause.

Change Order Evaluation

When change orders arise, the more appropriate and effective the documentation, the better. Providing or assessing the appropriate details – following or even going above and beyond what the contract states – is paramount for equitably negotiating the cost and timeline impacts of scope changes. This information also leads to less subjectivity when the merits and costs of claims are being evaluated. To help determine if change orders are fairly priced:

• Assess if a lump sum or time and materials (T&M) structure is more effective.
• Ensure all relevant information is documented, including a description of the work, a precise description or drawings of the work location, and details about factors such as labor, equipment, materials, quantities, and weather conditions.
• Evaluate environmental conditions, crew size, expertise level, logistics, and other factors that can affect how the work is performed and the associated costs.

Clear Communication

Communication is the crux of complex, well-run EV construction projects. Establishing a robust communication protocol early with defined roles and responsibilities gives each party visibility to the information they need to make informed decisions before issues snowball into larger problems. Consider the following questions:

• What are the expectations for communications?
• Which lines of communication need to be established?
• Who are the point people for the contractor, designer, owner, and other stakeholders?
• What is the hierarchy within each stakeholder group, and who needs to be informed and when?
• What is the protocol for site civil, design, and mechanical, electrical, and plumbing (MEP) meetings, among others?
• What processes are required to communicate and escalate changes?

Establishing a robust communication protocol early with defined roles and responsibilities gives each party visibility to the information they need to make informed decisions before issues snowball into larger problems.

If effective communication breaks down, negotiations and disputes are far more likely to ensue. In many cases, this can be avoided by sharing the right information with the right parties in real-time instead of pushing off issues to be dealt with later.

Relatively speaking, EV plant construction is in its early days as automakers prepare for unprecedented consumer demand. Learning from real-world experience can help all parties anticipate and manage the complex challenges these projects present. Ultimately, problems that have the potential to become significant issues can be effectively mitigated through a practical, well-thought-out approach to risk and contract management.

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^[1] https://www.goldmansachs.com/insights/articles/electric-vehicle-battery-prices-falling

^[2] EVO Report 2024 | BloombergNEF | Bloomberg Finance LP (bnef.com)

^[3] https://about.bnef.com/blog/electric-vehicle-sales-headed-for-record-year-but-growth-slowdown-puts-climate-targets-at-risk-according-to-bloombergnef-report/

^[4] https://techcrunch.com/2024/07/20/tracking-the-ev-battery-factory-construction-boom-across-north-america/

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