EPC Contract

EPC Contract

Drafts a turnkey EPC contract establishing rights, obligations, risk allocations, and technical requirements between a project owner and contractor for design, procurement, construction, testing, and commissioning of an industrial facility.

Prerequisites

Gather before drafting:

1. Project description — facility type, capacity, throughput specs, location
2. Party details — legal names, entity types, jurisdictions, addresses, authorized signatories
3. Governing documents — RFPs, term sheets, LOIs, precedent agreements
4. Pricing structure — lump-sum, GMP, cost-plus, or hybrid
5. Schedule — target milestones, NTP conditions, substantial/​final completion dates
6. Performance requirements — output capacity, efficiency, emissions, availability guarantees
7. Jurisdiction — governing law, regulatory/​permitting regime
8. Insurance requirements — owner's minimum coverage expectations

Contract Sections

Draft all 14 sections in order.

1. Recitals & Parties

• Owner: legal name, entity type, jurisdiction, address, tax ID, authorized rep
• Contractor: same; if JV/​consortium — lead contractor, liability structure (joint & several or allocated)
• Recitals: owner's objectives, contractor qualifications, turnkey intent

2. Definitions

Define at minimum:

Include project-specific technical terms referencing industry standards (ASME, IEEE, ISA).

3. Scope of Work

A. Engineering — All disciplines (civil/​structural, mechanical, electrical, I&C, process, environmental, safety); conceptual through detailed.

B. Procurement — Major equipment (turbines, generators, compressors, vessels, heat exchangers), bulk materials, spare parts, special tools. Identify owner-furnished items with interface requirements.

C. Construction & Installation — Site prep, civil, foundations, structural, mechanical/​piping, electrical/​instrumentation, insulation/​painting/​fireproofing. Reference applicable codes.

D. Testing & Commissioning — Factory acceptance → pre-commissioning → integrated systems → performance testing → reliability demo. Include owner witness rights and acceptance criteria.

E. Ancillary — Permitting (allocate owner vs. contractor), training (classroom + hands-on), documentation deliverables (design basis, as-builts, O&M manuals — specify format/​schedule).

F. Exclusions — Land acquisition, off-site utilities to boundary, owner personnel, financing, owner-controlled insurance, owner permits.

4. Commercial Terms

Contract Price: Exact amount and currency. Pricing type (lump-sum/​GMP/​cost-plus/​hybrid). Confirm all E, P, C, testing, commissioning, training, documentation included. Adjustments limited to owner changes, differing site conditions, force majeure, change in law.

Payment Schedule:

• Retention: 5–10%; partial release at Substantial Completion, balance at Final Completion; contractor may substitute bond/​LC
• Invoicing: Submit within [X] days; owner review 15–30 days; payment within 30 days of approval; interest on late undisputed amounts
• Taxes: Allocate sales tax, VAT, customs duties, import taxes

5. Schedule

• Commencement: NTP conditions precedent (site access, permits, financing)
• Duration: Calendar days/​months from NTP to Final Completion
• Key milestones: Design → PO awards → long-lead delivery → construction start → mechanical completion → commissioning → Substantial Completion → performance testing → Final Completion
• Certification: Contractor notice → owner inspection → completion certificate

Delay Management:

• Notice: prompt written notice + cause + critical path impact + time request
• Delay LDs: Daily/​weekly rate for late Substantial Completion; cap 5–15% of contract price
• Early completion bonus (optional): per day/​week ahead of schedule

6. Performance Guarantees

Guaranteed Parameters (select applicable):

• Include correction curves for reference conditions
• Test protocol: timing, duration, valid runs, stability criteria, instrumentation, data recording
• Retest rights: optimization period; max retests specified

Performance LDs:

• Rejection threshold: shortfall exceeding [X]% → owner may reject facility

7. Change Management

• Formal written change order required before work begins (emergency exception with retroactive approval)
• Contractor proposal within 10–20 business days: scope, cost breakdown, markup (10–20% OH&P), schedule/​CPM impact, effect on guarantees
• Pricing: lump-sum, unit price, T&M, or cost-plus
• Owner review: 15–30 days
• Disputed changes: contractor proceeds under directed change order; pricing resolved via dispute resolution
• Cumulative changes exceeding [X]% trigger renegotiation or termination-for-convenience rights

8. Indemnification & Liability

Contractor indemnifies Owner for: bodily injury/​death, property damage, regulatory violations, IP infringement, environmental contamination, breach.

Owner indemnifies Contractor for: owner negligence/​willful misconduct/​breach; defects in owner-furnished items.

Exceptions: Claims from sole negligence of indemnified party. Joint negligence: comparative fault.

Procedure: Prompt notice → indemnifying party controls defense → cooperation → settlement limits.

Liability caps:

• Consequential damages mutually excluded (exceptions: gross negligence, willful misconduct, confidentiality, IP, environmental)
• Aggregate cap: contract price (or [X]x); uncapped: indemnity, IP, willful misconduct, fraud

9. Insurance

All policies: owner as additional insured, waiver of subrogation, 30-day cancellation notice, certificates before work starts.

10. Warranties

• Scope: All work free from defects in materials, workmanship, and design
• Period: 12–24 months from Substantial Completion; restarts for repaired/​replaced items
• Materials: New unless specified; suitable for intended purpose
• Pass-through: Assign all manufacturer/​supplier warranties to owner
• Defect correction: Written notice → repair within 24 hours (urgent) to 10 business days (non-urgent) → costs on contractor
• Self-help: If contractor fails to correct, owner may correct and charge contractor
• Security: Bond or LC, 5–10% of contract price; released on warranty expiration

11. Termination

12. Dispute Resolution

Tiered process:

1. Negotiation — Senior executives, 30 days
2. Mediation — Mutually acceptable mediator, 60 days
3. Binding — Arbitration (ICC/​AAA; 1 or 3 arbitrators; specify seat/​language) OR litigation (exclusive jurisdiction/​venue)

• Governing law: [Jurisdiction], excluding conflicts-of-law. Exclude CISG if international.
• Fees: Each party bears own OR prevailing party recovers
• Jury waiver: Include if parties prefer bench trial

13. Administrative Provisions

• Notices: Written; delivery/​courier/​certified mail/​email; effective on receipt
• Assignment: Contractor needs owner consent; owner assigns freely to affiliates/​lenders
• Boilerplate: Entire agreement, amendments in writing, severability, non-waiver, mutual confidentiality, force majeure (notice + mitigation)

14. Execution

Signature blocks: entity name, signature, printed name, title, date. Add notarization/​witness if required by governing law.

Pitfalls

• Confirm pricing structure before drafting commercial terms
• Mark uncertain statutory/​regulatory citations with [VERIFY] for the specific jurisdiction
• Scale insurance minimums to project size and risk profile
• LD rates must reflect reasonable pre-estimates of actual damages to be enforceable
• Performance guarantees and test protocols are project-specific — confirm with user before finalizing
• For JV/​consortium contractors, explicitly address lead designation and liability allocation
• Flag gaps in provided information — never assume critical business terms
• Verify internal consistency of cross-references, defined terms, and exhibit/​schedule references
• For international projects: address currency, CISG exclusion, arbitration seat, language, import/​export compliance