Mitigating project risks

The opportunity

Canada is opening new and important opportunities for infrastructure investment in critical minerals, LNG, electricity, defence, nuclear energy and other sectors. When development speeds up, opportunities and complexities intensify. Multi-party structures, evolving regulatory frameworks, and cross-jurisdictional arrangements introduce potential friction points. If not addressed proactively, the risk of significant disputes is real.

The best path to protecting value and maintaining project timelines is to structure the project from the outset with a focus on managing that risk. Major infrastructure disputes can have significant impacts: they can introduce significant uncertainty, increase project costs, and introduce project delay. Thoughtful structuring at the front end pays big dividends during development, both in avoiding disputes and properly managing those that cannot be stopped.

This primer addresses what investors in the Canadian infrastructure space should consider from the start of a potential project to minimize or avoid the risk of a dispute from asset acquisition through operation.

Structuring investments to minimize disputes

The structure of an investment from the outset has a material impact on the likelihood and impact of disputes throughout the project’s lifecycle. The following structuring considerations are particularly relevant in the Canadian infrastructure context.

Choice of investment vehicle. The choice of a joint venture, limited partnership, corporate acquisition or other structure should be made with dispute risk in mind. Multi-party joint ventures enable risk-sharing, but they also create multiple potential axes of disagreement. The governing agreements must be drafted with sufficient precision to address foreseeable areas of friction, including arrangements to ensure funding disputes do not disrupt project development timelines.

Governance and decision-making. Clear governance frameworks that balance operational control with partner participation are essential. Effective decision-making protocols should specify which decisions require unanimity, supermajority, or simple majority approval; establish clear processes for resolving deadlocks; and define the rights and obligations of operators versus non-operating participants. In multi-party joint ventures, failure to establish workable decision-making mechanisms at the outset is among the most common sources of disputes during the operational phase.

Upstream/downstream alignment. Infrastructure projects frequently involve a series of contracts that span the value chain—upstream supply, midstream processing or transportation, and downstream offtake. Misalignment among the various contractual obligations is a significant source of disputes. To avoid situations where one party’s obligations become impossible or uneconomic to perform due to changes elsewhere in the value chain, investors should ensure that capacity commitments, volume obligations, pricing mechanisms, and force majeure provisions are coordinated across the project’s contract ecosystem.

Dispute resolution mechanisms. Every material project agreement should incorporate express dispute resolution mechanisms. Best practices in the infrastructure context include expert decision-making panels embedded in the project, serving to resolve routine issues, often on an interim basis, and arbitration for material matters requiring binding resolution. Cost-allocation mechanisms that guide interim and final responsibility for costs among project participants can help ensure project timelines are not disrupted by a dispute.

Cost-allocation mechanisms. In multi-party projects, the allocation of cost escalation risk, both anticipated and unanticipated, is a perennial source of friction. Robust cost-allocation frameworks should be established at the structuring stage, with clear principles for allocating shared costs, mechanisms for resolving disagreements about cost categorization (especially for unanticipated costs), and processes for addressing cost overruns and scope changes. Mandatory statutory prompt payment and dispute regimes apply in several Canadian jurisdictions and need to be considered.

Managing regulatory and approval risk

Regulatory risk remains one of the most significant drivers of disputes in Canadian infrastructure projects. Managing this risk requires proactive structuring from the outset.

• Investment Canada Act review. Foreign investors acquiring control of Canadian infrastructure assets above prescribed thresholds will be subject to net benefit review, which can take approximately 75 to 90 days or more. Investors should build these timelines into transaction planning, and develop a compelling rationale as to why a deal is in the public interest, along with a clearly developed strategy to identify and make commitments to strengthen Canada.
• Foreign investors acquiring Canadian infrastructure assets may be subject to national security or economic “net benefit” reviews, which can be time-consuming. Investors should assess substantive risks, develop strategies to mitigate them, and build potential review timelines into transaction planning.
• Structuring to reduce foreign investment review risk. Structuring investments as joint ventures or partnerships, and ensuring alignment with Canada’s nation-building agenda, can reduce foreign investment review risk, and avoid the delays and conditions that might otherwise attach to an acquisition of an existing Canadian business.
• Challenges to regulatory approvals. Almost every large infrastructure project will need to obtain a variety of regulatory approvals and licenses, sometimes from more than one level of government. Opposition to a project, either from communities or Indigenous groups, creates the risk that regulatory approvals may be challenged through judicial review—for example, on the basis that the government’s decision to approve a project was unreasonable, or that the government failed to adequately discharge its duty to consult. These risks should be mitigated at every stage of the project, including through early community and Indigenous engagement, and through careful design and construction decisions. Proactive engagement with all stakeholders—commercial counterparties, government, regulators, Indigenous groups, co-venturers, and local communities—is the most effective tool for mitigating the risk of disputes. For more information about Indigenous engagement, see our primer on Indigenous partnerships, which looks at Indigenous rights, consultation, and participation.
• Expedited approval timelines. The federal government established the Major Projects Office to coordinate approvals and fast-track nationally significant projects. Provincial governments have also enacted legislation to accelerate approvals, including British Columbia’s Infrastructure Projects Act and Ontario’s Protect Ontario by Unleashing Our Economy Act. Investors should understand which approval pathways are available, and structure their projects to qualify for expedited treatment where possible. However, expedited timelines increase the risk that resulting expedited approvals may be challenged. It is therefore crucial to manage this risk from the outset.
• Regulatory change protections. Investors should structure their investments to maximize available protections in the event of policy shifts by future governments. Investment structures should include stabilization provisions in project agreements, regulatory change compensation mechanisms, careful attention to the terms of government approvals and permits, and assessment of protection for international investments under applicable bilateral investment treaties.
• Constitutional challenges and legislative developments. Canada is a country with strong constitutional power for the provinces, especially when it comes to project development. Inter-governmental disputes can affect investment certainty; an example is Alberta’s constitutional challenge to the federal Clean Electricity Regulations. Municipalities may also attempt to contest projects by insisting that federally regulated projects must comply with provincial and municipal regulations (which may be inapplicable, depending on the circumstances). Investors should monitor such challenges and assess how adverse outcomes could affect their assets. The enactment of new legislation may also create new obligations or opportunities that affect the risk profile of infrastructure investments.

Operational risk and ongoing dispute avoidance

Dispute risk does not end at closing. Infrastructure assets are long-lived, and the relationships among project participants must be managed over decades. Several operational considerations are critical to ongoing dispute avoidance.

Compliance with negotiated undertakings

Where undertakings have been made to the Canadian government under the Investment Canada Act or as conditions of regulatory approvals, maintaining compliance is essential. Undertakings typically relate to Canadian employment levels, capital expenditure commitments, senior management presence, and other operational matters. Most are time-limited (to three or five years), but failure to comply during the commitment period can result in government enforcement proceedings.

Multi-party relationship management

Managing relationships among multiple parties over long-term project lifecycles requires ongoing attention. Sophisticated negotiations and agreements will be required to meaningfully align the rights, obligations, and incentives of the relevant parties. Regular communication, transparent reporting, and established processes for addressing emerging issues in a cooperative manner before they escalate are essential components of relationship management in complex infrastructure projects, including projects with Indigenous participation.

Evolving ownership models

Ownership models in Canadian infrastructure are becoming more varied. While many assets remain owned by provincial or territorial Crown entities, Indigenous groups and independent companies are playing a growing role. Changes in ownership composition—whether through the entry of new partners, the exit of existing ones, or changes in the relative interests of participants—can introduce new dynamics that need to be managed carefully.

Reporting, audit and compliance frameworks

Robust reporting, audit and compliance frameworks can serve as conditions of regulatory approval and as dispute prevention tools. Clear reporting obligations, agreed audit rights, and transparent compliance processes reduce the scope for disagreements about performance, cost allocation, and regulatory compliance.

Interface risks

Complex infrastructure projects frequently involve interfaces among multiple systems, jurisdictions, and operators. For example, transmission interconnections require coordinated processes across jurisdictions for planning, construction, and operation. Interface risks—arising from unclear allocation of responsibility at system boundaries, different technical standards, or misaligned scheduling—are a common source of disputes in infrastructure projects and should be addressed through detailed interface agreements.