19 Jan Engineering Procurement and Construction Contracts (EPC)
There are a number of contracting arrangements that may be considered for construction and infrastructure projects depending on the scope of works and the services sought. Examples of such procurement and delivery mechanisms include: Design and Build, Design-Build-Operate (DBO), Build-Operate-Transfer (BOT), Construction and Management, Operation and Maintenance (OM) Contracts.
The International Federation of Consulting Engineers (FIDIC) has approved a set of standard contracting forms for a variety of projects, one of which is the Engineering, Procurement and Construction (EPC) Contract. These standard contracting arrangements collectively form part of the FIDIC Suite of Contracts’.
EPC has more recently become a preferred procurement mechanism for the Government of Ghana, particularly in relation to the Sinohydro Road Projects.
In this blog post, we will focus on EPC Contracts and some key provisions, specifically with reference to FIDIC Silver Book 2017 Edition.
1. What is unique about the FIDIC Suite of Contracts?
The FIDIC Suite of Contracts comprises of a number of ‘Books’ which reflect a universal standard for a variety of projects. The Suite is presented as a set of General Conditions, with the option for parties to ‘contract out’ of certain standard provisions by drafting Particular Conditions to suit the project as well as the relevant local laws. Depending on the type of procurement mechanism, some General Conditions are mandatory of which parties cannot opt out of. For example, “Fitness for Purpose” under the (EPC) Silver Book, as discussed below.
2. What is the nature of an EPC Contract?
The EPC Contract places a greater obligation on the Contractor to design, construct, erect and deliver a completed asset or facility within a specified time frame. The Employer or Project Sponsor simply needs to “turn a key” to operate the facility upon completion. EPC contracts are therefore commonly referred to as Turnkey Projects.
3. Are EPC contracts appropriate for all construction projects?
EPC/Turnkey Projects are not suitable for the following:
- Projects that are time sensitive and do not afford the Contractor sufficient opportunity to verify the Employer’s requirements,
design and carry out risk assessments;
- Underground Projects;
- Projects where the Employer/ Project Sponsor intends to control the Contractor’s work and review most of the drawings.
4. What are some of the key considerations under the FIDIC (EPC) Silver Book 2017?
a. Contract Price
- Under the EPC contract, a Contractor is often paid a fixed sum for performance of the works. Contingencies must be factored into
the fixed contract price.
- The assumption of the entire risk and sometimes the cost overruns by the Contractor attracts a premium contract price, to serve as an incentive to the Contractor.
- The EPC contract must specifically identify items that are to be excluded from the Contract Price.
b. Scope of Works
- The scope of works should be clearly defined under EPC. This enables the Contractor to thoroughly assess and understand the works
to be carried out. The Employer must describe the facility and standards of performance that ought to be achieved. Any change
would be considered a Variation to the Works as defined under the 2017 Silver Book.
c. Fitness for Purpose
- One of the essential features under EPC is that the Contractor must guarantee that the completed works will be fit for the
intended purpose as required by the Employer. This absolute obligation places a higher sense of duty on the Contractor. Thus,
notwithstanding the fact that the Employer provided the design requirements and specifications, the responsibility rests with the
Contractor to ensure that the executed works are capable of meeting the agreed performance criteria.
d. Risk Allocation
- The Contractor assumes a greater degree of risk as compared to the Employer under the EPC contract. The EPC Contractor is
responsible for unforeseeable shortages, design errors and permanent defects, although the Employer is predominantly responsible
for site acquisition, preparation and access.
- There are a number of shared risks between the Contractor and the Employer. These include but are not limited to; acquisition of licenses and permits, and delays caused by respective government authorities.
- It is not uncommon for the EPC Contractor to enjoy a degree of flexibility in delivering the project to the Employer as an incentive for the assumption of greater risk.
e. Reporting Obligations
- The EPC Contractor is required to submit a programme and programme requirements to the Employer in advance. The programme will
contain key delivery dates in relation to the project. The programme must be updated periodically to accurately reflect progress.
- The EPC Contractor is also required to submit monthly progress reports to enable the Employer or Project Sponsor assess the extent
of works carried out.
5. What is the dispute resolution mechanism under the FIDIC (EPC) Silver Book?
- The FIDIC Silver Book 2017 places emphasis on dispute avoidance. The contract provisions make it mandatory that all disputes be
referred to the Dispute Avoidance/Adjudication Board (DAAB) as a pre-condition to the submission of a claim to Arbitration.
- DAAB is empowered to provide assistance in the event of any disagreement between the parties. Decisions by DAAB are provisionally
binding; they are binding until one party gives notification of its objection to the other within a specific time frame.
To further discuss this blog post or related matters, visit our office at House No. F106/5, 4th Soula Street, Peter Ala Adjetey Avenue, Labone – Accra or contact us on 0307001566 or firstname.lastname@example.org and a member of the B & P ASSOCIATES legal team will be happy to provide further insight.