Implication of clauses in EPC agreement on the scope of

the project

Engineering, Procurement and Construction Agreement is made and dated between the contractor and the owner (Project Developer).

It includes the detailed engineering design of the project, procure equipment and material necessary and then construct to deliver a functioning facility to the owner as prescribed by them within an agreed period of time.

EPC Contract

Solely responsible for engineering, procurement and construction of the facility i.e. performance of deliverables• EPC• Retention of project manager etc• Compliance with law• Inspections• Facility startup and acceptance testing

EPC Contract mentions • what activities needs to be performed • Timeline of performance• Quality of tasks performed and materials procured etc.

Contractor’s roles and responsibilities

• Verification of details of contractor• Timely payment to the contractor• Right to look into affairs of the contractor like

Compliance with law• Inspection of contractors work• Right to check expenditure records

Owner’s roles and responsibilities

Specification of Milestones

• EPC contract includes payment milestones• Mentions different stages of the project as milestones like

mechanical completion, final completion, acceptance testing and commercial operations

Specification of acceptance criteria

Contractor guarantees that the facility shall perform at not less than 97% of the promised Capacity by the end of the Acceptance Testing Period

Addenda and change orders

• Addenda are the changes to the work before construction begins

• Change orders are changes to the work after construction begins

• May be initiated by owner or the contractor• If initiated by contractor cost is to be shared equally• If initiated by owner and evaluated by the contractor

incremental cost will be borne by the owner• In case of errors or omissions by the contractor cost will be

borne by the contractor

• Specification of guranteed mechanical completion date, otherwise the contractor is liable to pay liquidated damages

• In case of disputes regarding performance of deliverables the contract specifies the actions that both the parties will resort to

Defects with EPC Milestones

Arbitration

Written Notice( Response within 5 business days)

Mutual Discussion (Within 30 days)

Changes in Scope

The EPC contract also mentions that both the parties can give a written notice to restructure the mutually aggred upon terms and conditions of the project

Such restructuring may relate to reallocation of cost or risk. It also specifies which party will bear the cost of such restructuring

For example if the Government Authority imposes any additional requirements or modifications that increase the overall cost of the Work, then the Owner shall bear such incremental cost