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A $300 million refinery project. Everything looked perfect on paper. Budget approved. Timeline agreed. Everyone shook hands.
Then reality hit. The contractor said certain equipment wasn’t included. The client disagreed. Both pointed to the contract. But the contract was vague.
Six months of legal battles. Millions in disputes. The project was delayed by a year.
All because the contract was poorly drafted.
This happens more often than anyone admits. Companies invest millions in engineering and construction. But they skimp on contract drafting. They use templates without thinking. They leave the scope ambiguous. They ignore risk allocation.
Then they wonder why projects fail.
Let me show you how to draft contracts that actually work. Contracts that prevent disputes instead of causing them. Contracts that protect your interests while keeping projects moving.
This isn’t theory. This is what top EPC firms do.
What is Contract Management in EPC Projects?
EPC stands for Engineering, Procurement, and Construction. It’s a single package deal.
One contractor takes responsibility for everything. They design the facility. They buy all the equipment. They built it. They test it. They hand over a working plant.
This is different from traditional construction. In traditional projects, the owner designs. Then they hire a contractor to build. Responsibility is split.
EPC bundles everything under one roof. One point of accountability.
EPC and Construction Contracts isn’t just about signing documents. It’s about:
Ensuring scope compliance. The contractor must deliver what they promised. Not less. Not something different. Exactly what the contract specifies.
Managing risks actively. EPC projects face design risks. Procurement risks. Construction risks. Performance risks. The contract defines who bears each risk. Contract management ensures risks are handled properly.
Controlling changes. No matter how good the planning, things change. Equipment specifications evolve. Site conditions differ. Regulations change. Contract management ensures changes are documented, priced, and approved properly.
Defending claims. When disputes arise, your contract is your defense. Good contract management means building your case as you go. Documentation. Records. Proof.
The contract lifecycle runs from drafting through award, execution, and close-out. Each phase matters.
Most failures happen in drafting. The contract is unclear. Deliverables are vague. Risk allocation is ambiguous. Payment terms are confusing.
You can’t fix a bad contract with good project management. Fix it at the source. Draft it right.
Step-by-Step EPC Contract Drafting Framework
Let me walk you through how to draft contracts that work.
Step 1: Define Scope and Deliverables to Zero Ambiguity
This is where most contracts fail. The scope is fuzzy.
The contractor interprets the scope narrowly. They deliver the minimum. The client expected more. Both claim the contract supports their view.
Don’t let this happen to you.
Define design deliverables precisely. What design documents must the contractor produce? Detailed engineering drawings. Equipment datasheets. P&IDs. Structural calculations. Electrical single-line diagrams.
List them. Specify quantities. Define submission schedules. State approval requirements.
For example, don’t say “provide engineering drawings.” Say “provide 150 detailed engineering drawings covering civil, structural, mechanical, electrical, and instrumentation systems, submitted in three phases: 30% review, 60% review, and final for construction.”
Be that specific.
Define construction deliverables. What physical works must be completed? Buildings. Structures. Equipment installation. Piping. Electrical systems. Control systems.
Use clear specifications. Reference international standards. Include quality requirements.
Define performance criteria. For EPC projects, performance matters. The facility must produce X amount. At Y efficiency. Meeting Z standards.
State these as contractual requirements. Include testing procedures. Define acceptance criteria. Specify penalties if performance isn’t met.
Attach comprehensive technical specifications. Your contract should reference detailed technical specs. These become contractual documents. Equipment specs. Material standards. Construction methods. Quality standards.
Don’t bury these in an appendix and forget them. Make them binding. Require compliance.
Define commissioning requirements. How will the facility be tested? Factory Acceptance Tests for equipment. Site Acceptance Tests. Integrated system tests. Performance tests.
Specify test procedures. State acceptance criteria. Define who witnesses tests. What happens if tests fail.
I once reviewed a contract where “commissioning” wasn’t defined. The contractor did minimal testing. The client expected comprehensive commissioning. The dispute cost more than proper commissioning would have.
Clarify exclusions explicitly. What’s NOT included in scope? Be clear. List exclusions.
For instance, “This contract excludes provision of utilities beyond the battery limits, owner-furnished equipment, and off-site infrastructure.”
Exclusions prevent contractors from claiming that everything they don’t want to do is extra.
The goal is simple. Anyone reading your contract should know exactly what’s included. No interpretation needed. No guessing. Zero ambiguity.
Step 2: Set Responsibilities and Interface Management
EPC projects involve multiple parties. Contractor. Client. Subcontractors. Suppliers. Consultants. Everyone has responsibilities.
Define them clearly.
Contractor responsibilities. What must the contractor do? Design. Procure. Construct. Test. Commission. Train operators. Provide O&M manuals. Provide as-built drawings.
List everything. Don’t assume anything is obvious.
Client responsibilities. What must the client provide? Site access. Utilities. Permits. Approvals. Client-furnished equipment. Information.
Specify timelines. If the client must provide something by a certain date, say so. Late provision should entitle the contractor to time and cost relief.
Subcontractor coordination. EPC contractors typically subcontract most work. The contract should address this.
Who selects subcontractors? Does the client have approval rights? How are subcontractor issues handled? What happens if a subcontractor fails?
State clearly that subcontractor performance is the contractor’s responsibility. The client deals only with the main contractor.
Interface management. Where different packages of work meet, problems happen. Define interfaces explicitly.
For example, battery limits for different systems. Mechanical-electrical interfaces. Civil-structural interfaces. Between the main contractor’s work and the client-furnished equipment.
Who coordinates? Who fixes interface problems? Who pays?
I worked on a project where the main contractor and a separate instrumentation contractor had overlapping scopes. Neither took responsibility for connecting systems. The plant sat idle for weeks while they argued.
Clear interface definitions prevent this.
Handover requirements. What must the contractor provide at completion? As-built drawings. O&M manuals. Spare parts lists. Training for operations staff. Warranty documents.
Define quantity and quality. Don’t accept incomplete handover documentation.
Step 3: Structure Payment Terms and Commercial Model
Money drives behavior. Structure payment terms to incentivize good performance.
Choose the right payment model. For EPC projects, a lump sum is most common. The contractor quotes a fixed price for the complete scope.
This gives the client cost certainty. The contractor bears cost risk.
Alternatively, milestone-based payments. The price is still fixed. But payment follows achievement of defined milestones. Design completion. Equipment delivery. Mechanical completion. Commissioning. Performance testing.
Milestones should be objective and verifiable. Not “substantial progress” but “foundation concrete for all structures completed and cured.”
Some contracts use unit rates for certain items. But in EPC, the lump sum dominates.
Define advance payments carefully. Many EPC contracts include advance payments. The client pays a percentage upfront. The contractor uses it for mobilization and initial procurement.
Specify the advance amount. Usually, 10-20% of the contract value. State when it’s paid. How it’s secured. Usually, the contractor provides a bank guarantee.
Define how advance is recovered. Typically, through deductions from progress payments.
Set retention terms. Retention is money held back from each payment. It’s released after successful completion and the defects liability period.
Common retention is 5-10% of each payment certificate. Held until project completion or defects liability expiry.
Define Liquidated Damages clearly. LDs are penalties for late completion or performance shortfall.
State the LD rate. For example, “$50,000 per day of delay up to a maximum of 10% of contract value.”
Define what triggers LDs. Usually delay is beyond the completion date. Or failure to meet guaranteed performance.
Be careful. Courts can strike down LDs if they’re penalties rather than genuine pre-estimates of loss. Keep them reasonable.
Include performance guarantees. For EPC projects, guaranteed performance is critical. The plant must produce specified output. At specified efficiency. Meeting specified quality.
State guarantees clearly. Define testing procedures. Specify penalties for shortfall.
For example, “The plant shall produce a minimum of 100 MW at 98% availability. Shortfall penalty: $10,000 per MW below guarantee.”
Require securities. Performance bonds. Bank guarantees. Parent company guarantees. These protect the client if the contractor fails.
Specify amounts. Usually, 10-20% of the contract value. Define when they’re released. Typically, after successful completion.
Step 4: Allocate Risks Clearly
Every project has risks. The question is who bears them.
Ambiguous risk allocation causes most disputes. Be explicit.
Design and performance risk. In EPC contracts, the contractor typically takes all design risk. If the design doesn’t work, that’s on them. If the plant doesn’t meet performance, they pay penalties.
State this clearly. “Contractor is solely responsible for all design errors, omissions, and performance shortfalls.”
Site condition risk. This is tricky. The client usually provides geotechnical investigation data. But actual conditions might differ.
Who takes the risk if the soil is weaker than indicated? If groundwater is higher? If contamination exists?
Many EPC contracts put this risk on the contractor. They should verify the data. Do their own investigations. Price accordingly.
But if the client misrepresented conditions, the contractor gets relief.
Define this precisely. Don’t leave grey areas.
Regulatory and permit risk. Who obtains permits? Who handles regulatory approvals?
Often split. The client handles major permits like environmental approvals. The contractor handles construction permits.
Define clearly. Specify timelines. What happens if permits are delayed?
Force majeure. Events beyond anyone’s control. Wars. Natural disasters. Pandemics. Strikes.
Define what qualifies as force majeure. State the consequences. Usually, time relief but no cost compensation.
Change in law risk. What if regulations change during the project? Who bears the cost of compliance?
Usually, the client. But state it explicitly.
Currency and inflation risk. For long projects, currency fluctuations and inflation matter. Who bears this risk?
EPC contracts often fix the price in one currency. The contractor takes currency risk. But major fluctuations might justify adjustment clauses.
Create a risk allocation matrix. A table showing each major risk and who bears it. Make this part of your contract.
This forces you to think through risks. It prevents disputes later.
I’ve seen contracts where risk allocation was implicit. Everyone assumed different things. When problems arose, massive arguments followed.
Explicit allocation prevents this.
Step 5: Define Change Order and Variation Process
Changes are inevitable. Your contract must handle them smoothly.
Define what constitutes a change. Any deviation from the contract scope. Client requests for modifications. Changes due to regulations. Changes due to site conditions.
Be clear. If it’s not in the original scope, it’s a change.
Establish the change order procedure. Who can request changes? Usually, either party. But only certain people have authority. Name them.
How are changes requested? Written change order request. Describing the change. Stating reasons.
Set pricing rules. How are changes priced? Options include:
- Agreed lump sum for the change
- Unit rates if the contract includes a schedule of rates
- Cost-plus with agreed markup
- Time and materials
Specify which method applies. Set timelines for pricing. The contractor has 14 days to submit a price proposal. The client has 7 days to accept or negotiate.
Require an impact assessment. Every change has cost and time impacts. The contractor must assess both.
Cost impact is obvious. But time impact matters too. Will the change delay completion? By how much? Does it affect the critical path?
The contractor submits an impact assessment with their price proposal.
Define approval authority. Who can approve changes? Up to what value?
Small changes might be approved by the project manager. Larger changes need client management approval. Very large changes need board approval.
Set clear thresholds. Below $50,000, the project manager can approve. $50,000-$500,000 needs VP approval. Above $500,000 needs board approval.
Document everything. Changes must be documented before work proceeds. A signed change order. With an agreed price. Agreed time impact. Approved by authorized persons.
Working without approved change orders is asking for disputes.
Link to delay and EOT claims. Changes that impact the schedule may entitle the contractor to an Extension of Time. Your change order process should address this.
If a change delays the critical path, the completion date extends accordingly.
Step 6: Address Legal and Compliance Requirements
Contracts must comply with the law. They must address regulatory requirements.
Specify governing law. Which country’s law governs the contract? This matters for interpretation and enforcement.
Usually, the law of the project location applies. But sometimes the client’s home country law.
Address local statutory requirements. Construction projects face numerous regulations. Building codes. Safety laws. Environmental regulations. Labor laws.
The contract should require compliance. Specify who obtains permits. Who ensures compliance?
Include health and safety obligations. Modern contracts have extensive H&S requirements. The contractor must maintain a safe worksite. Follow safety standards. Report incidents.
Define specific obligations. Safety plans. Safety officers. Training requirements. Incident reporting.
Address environmental requirements. Environmental compliance is critical. Waste management. Pollution prevention. Emissions limits.
The contract should require an environmental management plan. Regular environmental reporting. Compliance with environmental permits.
Define insurance requirements. What insurance must the contractor carry? Common requirements:
- General liability insurance
- Professional indemnity for design
- Workers compensation
- Construction all-risks insurance
- Equipment insurance
Specify minimum coverage amounts. Require the contractor to provide proof of insurance. Name the client as an additional insured.
Address labor and employment compliance. The contractor must comply with labor laws. Minimum wages. Working hours. Social security contributions.
For international projects, address immigration and work permits for expat workers.
Step 7: Define Quality, Testing, and Commissioning Standards
Quality can’t be assumed. It must be contractually required.
Specify quality standards. What standards apply? International codes like ASME, ASTM, IEC? National standards? Industry-specific standards?
List them. Make them contractual requirements. Require compliance.
Define inspection and testing requirements. What gets inspected? When? By whom?
Material inspection. Fabrication inspection. Installation inspection. Pre-commissioning checks.
Specify hold points. Points where work cannot proceed until inspection is completed and approved.
Address Factory Acceptance Testing. For major equipment, FAT is critical. The equipment is tested at the manufacturer’s facility before shipping.
Define FAT procedures. What tests are performed? What acceptance criteria? Who witnesses? What happens if equipment fails FAT?
Define Site Acceptance Testing. After installation, the equipment is tested on-site. SAT confirms proper installation and basic functionality.
Similar to FAT. Define procedures, criteria, witnesses, and consequences of failure.
Specify commissioning procedures. Commissioning is the systematic testing of all systems. First individual systems. Then, integrated systems. Finally, performance testing of the complete facility.
Detail the commissioning plan. What’s tested? In what sequence? What documentation is produced?
Set performance test procedures. The ultimate test. Does the facility meet guaranteed performance?
Define test conditions. Test duration. Measurement methods. Acceptance criteria.
What happens if the facility doesn’t meet guarantees? Typically, the contractor has a chance to remedy. If they can’t, penalties apply.
Define the Defects Liability Period. After the handover, a period where the contractor must fix defects. Usually 12-24 months.
Define what a defect is. How defects are reported. Response times. Contractor’s obligations. Consequences of non-performance.
Step 8: Establish Claims and Dispute Resolution Mechanisms
Despite best efforts, disputes happen. Your contract needs clear procedures.
Define notice requirements. Most claims require prompt notice. If you discover an issue, you must notify the other party within a specified time.
Common requirement: written notice within 14 or 28 days of becoming aware of the issue.
Miss the notice deadline? You might lose the right to claim.
Specify claims procedures. After notice, what happens? Typically:
- Initial notice describing the issue
- Detailed claim submission with supporting documents within 30-60 days
- The other party reviews and responds within 30 days
- Negotiation and resolution or escalation
Define each step. Set timelines. State what happens if timelines aren’t met.
Address Extension of Time claims. Delays happen. The contractor may be entitled to EOT if delays are caused by the client, force majeure, or other excusable events.
Define EOT procedures. How delays are documented. How EOT is calculated. Critical path analysis requirements.
Require documentation. Claims need evidence. Daily site records. Progress reports. Correspondence. Meeting minutes. Photos.
The contract should require the contractor to maintain detailed records. Make these available for inspection.
Establish a dispute resolution hierarchy. Don’t jump straight to litigation. Use a stepped approach:
Level 1: Project-level negotiation. Project managers try to resolve issues directly.
Level 2: Senior management review. If the project level fails, escalate to senior management.
Level 3: Mediation. A neutral mediator facilitates negotiation.
Level 4: Adjudication or expert determination. A neutral expert makes a quick decision. Binding unless challenged through arbitration.
Level 5: Arbitration. Final binding resolution by the arbitral tribunal.
Define rules for each level. Timelines. Who participates. What powers do they have?
Specify arbitration rules. If disputes reach arbitration, which rules apply? Common choices:
- ICC (International Chamber of Commerce)
- SIAC (Singapore International Arbitration Centre)
- LCIA (London Court of International Arbitration)
State the seat of arbitration. Number of arbitrators. Language.
Maintain contemporary records. This can’t be stressed enough. Good records are your best defense.
Daily site diaries. Progress photos. Meeting minutes. Correspondence files. All archived and searchable.
I’ve been in arbitrations where the party with better records won. Even when the other side had a stronger case on the merits.
How to Draft an EPC Contract – Step-by-step
1 • Define Scope & Deliverables
- List exact design documents (P&IDs, GA, SLD), number of drawings and submission phases (30%, 60%, final).
- Specify construction deliverables, acceptance criteria and exclusions explicitly.
- Attach enforceable technical specifications and commissioning requirements (FAT, SAT, performance tests).
2 • Responsibilities & Interface Management
- Define client obligations (site access, permits) with delivery dates and relief for delay.
- Make clear contractor liability for subcontractors and interface battery limits.
- List handover deliverables: as-built, O&M manuals, spare parts lists, training.
3 • Payment Structure & Securities
- Choose lump-sum or milestone model. Define objective milestone triggers.
- Set advance terms, retention %, bank guarantees and performance bonds.
- Define Liquidated Damages (rate, cap) and ensure they are genuine pre-estimates.
4 • Risk Allocation & Matrix
- Create a risk matrix: design, ground, permits, change-in-law, currency — assign clear owners.
- Define force majeure and change-in-law consequences (time vs cost relief).
- Be explicit about geotechnical risk & client data warranties.
5 • Change Order & Variation Control
- Require written change requests, contractor impact assessment (cost & time), and signed change orders before starting work.
- Set approval thresholds by value/authority level.
6 • Quality, Testing & Commissioning
- Define FAT, SAT, commissioning plan and performance testing procedures with acceptance criteria.
- Set defects liability period and remedies for failure to meet guarantees.
7 • Claims & Dispute Resolution
- Set notice periods (e.g., 14/28 days), claims procedures, EOT rules, and arbitration seat/rules.
- Enforce daily records, meeting minutes and document control as evidence for claims.
Q1 • Is the Employer doing the design?
Yes — Use Red Book
No — Continue to next question
Q2 • Does the contractor design + build?
Yes — Use Yellow Book
No — Need fixed-price turnkey?
Q3 • Do you need fixed-price turnkey guarantee (EPC)?
Yes — Use Silver Book
No — Consider Gold Book
Tip: Use the expand controls (▶) to drill into each decision and capture the recommended FIDIC book.
Downloadable Checklists – EPC & Construction Contracts
How to Manage Contracts in Construction Projects
Drafting is only half the battle. Execution matters equally.
Treat the contract as a living document. Not something you sign and file away. It’s your project roadmap. Your reference. Your protection.
Keep it accessible. Team members should know what the contract says. Particularly, clauses relevant to their work.
Maintain a change log. Track every variation. Date requested. Description. Cost impact. Time impact. Approval status.
This prevents disputes about what was agreed. It helps track the cumulative impact of changes.
Implement early warning systems. Don’t wait for problems to explode. Identify issues early. Warn the other party. Work together on solutions.
Many modern contracts require formal early warnings. Even if not required, do it anyway.
Conduct monthly contract reviews. Gather your team. Review:
- Progress versus contract schedule
- Cost to complete versus budget
- Pending claims and disputes
- Upcoming milestones and deliverables
- Scope creep risks
This keeps everyone aligned. Prevents surprises.
Enforce communication discipline. All instructions in writing. All changes documented. All agreements confirmed.
Minutes of every meeting. Filed and circulated within 48 hours. The other party has 7 days to object.
This creates an audit trail. Essential for claims defense.
Track compliance actively. Is the contractor meeting quality standards? Safety requirements? Schedule commitments?
Don’t wait until problems are massive. Catch non-compliance early.
Build relationships while protecting rights. Contract management isn’t about being adversarial. It’s about clarity.
Work collaboratively with the contractor. But document everything. Follow procedures. Protect your position.
I’ve seen projects where relationships were great, but contract management was sloppy. When disputes arose, friendly relationships didn’t save anyone.
Do both. Be professional and friendly. But follow your contract.
EPC Contracts vs FIDIC Standard Forms: Key Differences
People often ask about FIDIC versus custom EPC contracts. Here’s how they compare:
Design responsibility: EPC contracts always put full design on the contractor. FIDIC varies. Red Book has an employer design. The Yellow Book has a contractor design. Silver Book is similar to EPC.
Risk allocation: Custom EPC contracts tend to be heavily contractor-loaded. All risk goes to the contractor. FIDIC books, particularly Red and Yellow, have more balanced risk allocation.
Contract administration: EPC contracts often use an Employer’s Representative. This person works for and represents the employer. FIDIC Red and Yellow Books use an independent Engineer. This person has duties to both parties and is supposed to act impartially.
Pricing structure: EPC is almost always a lump-sum turnkey. FIDIC can be lump sum, Bill of Quantities, or unit rates. The Red Book commonly uses measured quantities.
Performance guarantees: EPC contracts typically have strict performance requirements with significant penalties. FIDIC books have performance provisions, but often less onerous.
Flexibility: Custom EPC contracts can be tailored completely to project needs. FIDIC provides standard forms that are modified through Special Conditions.
The FIDIC Silver Book is closest to typical EPC practice. It’s designed for turnkey projects with maximum contractor risk.
Many clients prefer FIDIC because it’s internationally recognized. Contractors and lenders know it. It has established case law and interpretation.
But for projects with unique requirements, custom EPC contracts offer more flexibility.
Common Mistakes to Avoid
Let me share what goes wrong repeatedly:
Undefined interfaces. Multiple contractors are working on adjacent systems. Nobody defined where one scope ends and another begins. Result: gaps in scope. Or overlaps. Both cause disputes.
Always define interfaces explicitly.
Missing time-bar clauses. Claims require notice within specified periods. But the contract doesn’t include time bars. Result: claims arriving years after events. Evidence is gone. People have moved on. Impossible to defend.
Include clear time bars. Enforce them.
Poorly worded liquidated damages clauses. LDs that are penalties rather than genuine pre-estimates. Courts strike them down. You wanted protection, but have none.
Keep LDs reasonable. Document the basis for the LD rate.
Bill of Quantities in lump-sum EPC contracts. The contract says lump sum. But it includes a detailed BOQ. The contractor argues that BOQ quantities are guaranteed. Changes trigger claims.
For lump-sum EPC, don’t include BOQs. Or state very clearly that BOQs are for reference only and don’t define scope.
Documentation lapses. No daily records. Meeting minutes are late or incomplete. Correspondence isn’t filed properly.
When disputes arise, you can’t prove your case. Even valid claims fail without evidence.
Make documentation a discipline. Not optional.
Vague scope descriptions. “Install all necessary equipment.” What’s necessary? Who decides? Guaranteed dispute.
Be specific. List equipment. Define “necessary.”
Ignoring subcontract alignment. The main contract has certain provisions. But subcontracts don’t match. Flow-down is incomplete.
When subcontractors fail, the main contractor bears the risk they thought they’d passed on.
Align subcontracts with main contracts carefully.
Leading EPC & Contract Management Training Institute in Noida & Delhi NCR – RKS Trainings
RKS Trainings is a trusted name in professional EPC, construction contract drafting, and FIDIC-based training programs across Noida and Delhi NCR. With a practical, industry-focused approach, RKS equips engineers, project managers, contract administrators, and legal professionals with real-world skills required to manage high-value infrastructure and EPC projects. Located in Noida, with additional training sessions conducted across Delhi, RKS provides both classroom and live-online formats, making advanced contract education accessible, flexible, and aligned with industry needs. Their expert-led sessions, case studies, and hands-on exercises make RKS one of the most preferred institutes for contract management training in the region.
Conclusion: Strong Contracts Are Project Foundations
Here’s the truth about EPC and construction contracts.
They’re not just legal documents. They’re project management tools. Risk management frameworks. Dispute prevention mechanisms.
A strong contract doesn’t guarantee project success. But a weak contract almost guarantees problems.
Invest time in drafting. Get it right upfront. Be clear. Be specific. Address risks explicitly. Define processes thoroughly.
Then, during execution, manage the contract actively. Don’t file it away. Use it. Follow it. Update it when changes occur.
The cost of good contract drafting and management is tiny compared to the cost of disputes, delays, and failures.
Whether you’re a contractor protecting your interests or a client ensuring delivery, the principles are the same. Clarity prevents disputes. Documentation protects rights. Process ensures smooth execution.
Use the framework in this guide. Adapt it to your projects. Build your own checklists and templates.
And remember: the best contract is one that never needs to be enforced because everyone understands their obligations and the project runs smoothly.
That’s the goal. Clear scope. Fair risk allocation. Robust processes. Professional execution.
Get your contracts right. Your projects will thank you.
FAQs
What is the most important part of an EPC contract?
The most critical part of an EPC contract is the scope definition—including deliverables, technical specifications, exclusions, and performance requirements. A poorly defined scope leads to variation disputes, cost overruns, and delays. Clear scope = fewer disputes.
What should be included in the scope section of an EPC contract?
A strong EPC scope must clearly define all design deliverables, construction activities, performance guarantees, testing requirements, exclusions, and handover documentation. Most disputes arise from unclear scope, so every task must be specific, measurable, and linked to technical specifications and acceptance criteria.
How do you allocate risk properly in EPC or construction contracts?
Risk allocation should match each party’s ability to control the risk. Contractors typically take design, procurement, construction, and performance risks, while clients handle permits, land access, and regulatory changes. A written risk matrix prevents misunderstandings and reduces disputes during execution.
Why do EPC contracts commonly use lump-sum pricing?
Lump-sum pricing gives the client cost certainty while placing cost overrun risk on the contractor. This model works when the scope is well-defined and stable. But if drawings or site conditions are uncertain, lump-sum contracts often lead to major claims and variations.
What are liquidated damages in EPC contracts, and how should they be set?
Liquidated damages compensate the client for delays or poor performance. They must reflect a reasonable estimate of actual financial loss to remain enforceable. Clear triggers, caps, and calculation methods help avoid disputes and ensure contractors understand the consequences of failing deadlines or guarantees.
How do change orders work in EPC projects?
A valid change order requires written initiation, cost and schedule impact assessment, approval by authorized parties, and formal documentation. Proceeding with verbal instructions leads to disputes. Structured change management protects both sides and keeps project progress aligned with contractual obligations.
What is the role of performance testing in EPC contracts?
Performance tests verify whether the facility meets guaranteed output, efficiency, or quality levels. Clear testing procedures, conditions, measurement methods, and remedies for failure are essential. Poorly drafted testing clauses often lead to disputes, delayed acceptance, or financial penalties.
Why are time-bar clauses important for claims?
Time-bar clauses require contractors to notify delays or cost impacts within a fixed period-often 14 to 28 days. Missing this deadline can void legitimate claims. These clauses promote transparency, encourage early warning, and help clients manage project impacts proactively.
What documentation is essential for defending claims in EPC contracts?
Strong claim defense requires daily site records, progress reports, correspondence, meeting minutes, schedules, photos, and cost data. Projects lose claims not because they’re wrong, but because they lack evidence. Consistent documentation is the backbone of successful contract management.
How do you prevent ambiguity in EPC contract deliverables?
Ambiguity is avoided by detailing all engineering documents, equipment lists, material standards, testing procedures, and acceptance criteria. Vague terms like “as required” or “all necessary works” should be replaced with exact descriptions. Clarity reduces disputes and ensures the contractor delivers expected outcomes.
What is the difference between EPC and FIDIC Silver Book contracts?
Both allocate major risks to the contractor, but EPC contracts are fully customized while the FIDIC Silver Book follows a standardized structure for turnkey delivery. Silver Book includes clearer procedures, but EPC contracts may better address project-specific technical, commercial, and operational needs.