EPC Contract

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EPC Contract

Introduction About the EPC Contract

The EPC contract or Engineering, Procurement, and Construction contract is one of the most common forms of contracts, which is often used for undertaking construction work on a large scale. Under this contract, a contractor is obliged to provide complete work to the developer.

An epc engineering procurement and construction agreement or a construction procurement agreement elaborate more on the obligations of both parties towards each other.

Who Takes the EPC Contract?

This contract is taken by a contractor and a developer. As per the contract, the construction work will be handled by the contractor as they have to complete the construction in the private sector on a large scale. The developer will organize the contract as they have to consider everything required to start the facility.

Purpose of the EPC Contract

This contract is organized to form a legal obligation between a contractor and a developer. After signing this contract both the parties are obliged to pay a guaranteed amount of money and complete the work in a guaranteed time. If any party fails in doing so, then it can lead to several types of issues to the guilty party.

Contents of the EPC Contract

There are various types of terms that need to be used in the contract

The inclusions are

  • EPIC for Engineering, Procurement, Installation & Commissioning LSTK for Lump Sum Turn Key.
  • EPCC for Engineering, Procurement, Construction, and Commissioning.
  • Single point responsibility
  • Fixed contract price
  • Fixed completion date
  • Performance guarantee
  • Caps on liability
  • Security
  • Liquidated damage
  • Defect liability period
  • Force majeure etc.

You can also refer to an EPC agreement sample, procurement and construction agreement, or engineering procurement and construction agreement pdf that provides a detailed view of the inclusions.

How to Draft the EPC Contract?

Though drafting an EPC agreement is simple, it differs as per the projects; however, it mandatorily needs to provide details for the construction. The process would include

  1. Negotiating all the details by both the parties
  2. Confirming the amount and time limits
  3. Forming a contract
  4. Agreement to the contract by the parties involved with their respective signatures

You can form a negotiation strategy for the contract as you can change the date for the work, making it more flexible. In cases of noncompletion of work at the allotted time, you can use it as a valid point for the negotiation. The price for the contracts is also negotiable, but it should be under a valid limit.

Benefits of the EPC Contract

Benefits

  • One of the most amazing benefits of the contract is that the contractor has to deliver the work by a guaranteed time. It means that you do not have to worry about the completion of the project as it will be done on time. Also, the developer also has to pay a guaranteed sum of money to the contractor.
  • Also, most importantly, this contract allows the owner to engage with just a contractor, who manages all the relationships with subcontractors. This ensures that the owner focuses on the evaluation of the performance of the contractor.
  • This, in turn, renders the contractor more control over the design and sub-contractors and enables them to act more efficiently and lower the construction costs.

Drawback

Since the responsibilities are delegated to the contractor, this could give rise to potential risks, in case of crucial project design. Thus, marking a project milestone will help debar additional/unexpected costs and changes.

Also, since the contractor performs the design and construction, the checks and balances are presented with the contractor and not the owner.

What Happens in Case of Violation?

In case of failure to comply with any of the requirements mentioned in the contract, the contractor will suffer monetary liabilities. It means that they have to pay the developer for any type of issues arising with the work undertaken.

So if you work in the construction industry, then this information about this contract will help you. This will help in protecting your interest and ensure that you gain positive results.

Sample for Engineering Procurement & Construction Agreement

A sample of the agreement can be downloaded from below.

EPC Contract-Download PDF

EPC contract

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