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18 Aug 2026
Insight
The AUKUS nuclear submarine program and rapid development of a domestic nuclear industry present many commercial and contractual risks for participants in Australia, whether prime contractors, subcontractors, suppliers, or service providers.
Each of these issues warrant close attention, with the potential to significantly affect a party’s risk exposure. Many are also influenced by the emerging state of Australia's nuclear regulatory environment.
Nuclear liability explained
In most established nuclear jurisdictions conventions have been put in place to ensure that liability related to nuclear incidents arising from civil applications – and in some cases military applications while on shore – is exclusively channelled to the licensed operator of a nuclear installation. In contrast, there is currently no channelling of claims related to nuclear incidents or liability for nuclear damage in Australia. It's also not certain what nuclear liability insurance arrangements will apply.
Without an established liability channelling regime in Australia, a person who suffers loss or damage due to a nuclear incident may bring a claim against any party that has some, or even perceived, involvement in the incident.
Given the scale of potential nuclear liability exposure, industry participants should carefully consider this risk and explore indemnity protection that:
- reinforces channelling by providing contractual recourse to the nuclear operator or licence holder; and
- closes the gap in relation to any claims that would not be channelled through the conventions.
What are the site access restrictions?
Extensive security clearance, site access and authorisation requirements are in place at nuclear sites and could be bolstered further by AUKUS. These processes can be lengthy and unpredictable. Contracts should address the allocation of risk where access is delayed due to access or clearance processing times.
This is particularly relevant in the context of defect rectification obligations and related commercial issues. Regulatory and safety restrictions at nuclear sites can limit or delay access for defect rectification works. Access to carry out corrective works in any high-radioactivity zones (HRZ) may need to be postponed until the area can be safely accessed.
Five points for contractors to consider
- Contracts should include specific provisions dealing with access and clearance timelines, the allocation of delay risk between parties where access or clearances are refused or delayed, and the consequences for milestone and completion obligations.
- Defect rectification obligations should be conditional on a contractor holding necessary clearances and authorisations to execute the relevant works.
- Contractors may seek the release of any performance security or payments linked to the rectification of all defects at the end of a set period of time after completion, rather than having to wait until there is an opportunity to enter and correct.
- If a contractor is required to wait and return to the HRZ at a later date, they may wish to consider recharging the incremental costs of correction that arise due to any worsening or deterioration attributable to delay in obtaining access.
- Contractors should consider the insurance overlay available (directly to it or from the relevant site operator) for sites with operational nuclear facilities.
Liability, force majeure, and relief events
The scale, complexity, and significant capital investment required from all parties is unique for nuclear projects. This has a number of contractual and commercial consequences.
Due to the intensive capital costs relative to other projects, limitations of liability in nuclear contracts are usually much lower as a proportion of the contract price. The sizing of caps is ultimately a commercial decision and very much depends on the scope of work, size of package and payment/risk model; but in the nuclear context we have seen aggregate liability caps below what is considered market in other sectors.
The force majeure definition is typically an open-list, a closed-list definition (and attendant risk pricing) is not generally considered value for money in the nuclear context.
Given the rapid pace of legislative and regulatory development in Australia, relief and compensation events triggered by change in law should be clearly defined.
Nuclear-related projects can also be contentious and high-profile and we typically see contractors push for full relief for protestor and third-party intervention action. Industry participants should consider whether a contract’s adjustment event regime expressly addresses this risk and, if not, whether intervention should be added as a named relief event.
What is the role of insurance?
In nuclear, the licensed operator would typically have in place project-wide construction-phase and operational-phase insurances covering all risks of loss or damage to the project works at the site. This includes any supplier/contractors' permanent works in progress and plant and materials for incorporation into the permanent works as well as third-party liabilities relating to on-site operations (subject to policy limits and exclusions, including excess/deductible amounts and maximum levels of cover).
However, industry participants should be aware that standard all risks insurance policies will not necessarily provide coverage throughout the life of a project. After nuclear materials arrive at the site, all risks insurance policies may cease to be available to cover loss or damage to the HRZ, meaning this risk may need to be self-insured. This gap in coverage widens where contractor activities are still ongoing after the introduction of nuclear fuel (with the transition to operational insurance).
Where adequate insurance protection is unavailable, contracting parties may explore whether indemnity protection can be negotiated for normally insurable events of loss or damage. In practice, this may involve contractors seeking indemnity protection from the licensed operator and subcontractors seeking protection from their employers. This is an evolving area in the Australian market.
What are the supply chain restrictions?
Contracts in the nuclear industry often include broad restrictions in relation to proscribed countries and nationals/dual nationals from those countries. This will be further reinforced in the context of the AUKUS program and sensitivities around military technology and export control restrictions.
Although not unexpected given the geopolitical sensitivities that characterise the defence and nuclear industries, this can cause practical issues and should be considered early in the supply chain engagement and mapping process.
What is the emerging regulatory environment for nuclear in Australia?
Given the emerging nature of the nuclear regulatory environment in Australia, the requirements of local authorities and regulators are currently formative. Industry participants should consider how best to manage the risk of emerging regulatory requirements. For example, in relation to execution methodologies, this could be framed as relief for a breach of pre-agreed assumptions about regulatory requirements, potentially built around the contractor's submitted execution plan prepared in line with established practice in more mature nuclear markets.
Given the current state of flux, parties should agree from the outset of contracting how best to allocate and manage risk relating to emerging requirements.
Conclusion
AUKUS and Australia's commitment to acquiring and domestically building nuclear-powered submarines represents a transformational opportunity for industry participants across the defence and nuclear supply chain. This article has highlighted some of the unique contractual challenges the nuclear landscape presents. With our extensive local and international experience advising on major defence and nuclear projects, Herbert Smith Freehills Kramer is uniquely placed to support industry participants in navigating these opportunities and challenges.
Key contacts
Tessa Donovan
Senior Associate, Perth
Abbie Pokorny
Executive Counsel, Melbourne
Toby Anderson
Partner, Sydney
Nicholas Carney
Partner, Head of Infrastructure Sector, Sydney
Daniel Zador
Partner, Perth
Tim Healey
Partner, London
Legal Notice
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills Kramer 2026
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