02 - FIDIC Jakarta C Presentation 2011 Final - Mr. Sarwono

FIDIC EPC/Turnkey Contract,
understanding and its implementation
Dr. Sarwono Hardjomuljadi

FIDIC International Accredited Trainer
sarwonohm2@yahoo.co.id
FIDIC International Training Seminar

“Management of Construction Claims”
Jakarta July 25-26, 2011
BACKGROUND
EPC VS CONSTRUCTION CONTRACT
REASON OF CHOOSING EPC CONTRACT
RELATED CONTRACT CLAUSES
CASES

Garner (2004) “Contract is an agreement between two or more
parties creating obligations that are enforceable or otherwise
recognizable at law”
(Bryan A.Garner (2004): “Black’s Law Dictionary”, Thomson West)
Martin and Law (2006) “Contract is a legally binding agreement.

Agreement arises as a result of “offer and acceptance”, but a number
of other requirements must be satisfied for an agreement to be legally
binding”.
(Elizabeth A Martin and Jonathan Law (2006): “Oxford Dictionary of Law”,
Oxford University Press)

Chow (2006) “Contract is a legally binding agreement formed when
one party accepts an offer made by another and which fulfills the
conditions”
(Chow Kok Fong (2006):” Construction Contracts Dictionary”, Sweet & Maxwell Asia)
John Adriaanse (2007) “A variety of factors makes a construction

contract different from most other types of contracts. These include
the length of the project, its complexity, its size and the fact that the
price agreed and the amount of work done may change as it
proceeds
John Adriaanse (2007): “Construction Contract Law”

ACKNOWLEDGED VS TAILOR MADE CONTRACT
N
Loan from international Use of self financing

lending institution resources
Using acknowledged Tailor made standard

contract’s standard
Economic/financial
disadvantages
Claim, Additional cost, More Claim, Additional
Disputes cost, Disputes
Incompliance to Improper modified

contract requirements contract’s clauses

MODIFIED CONDITIONS OF CONTRACT BY THE EMPLOYER
Employer’s Reason : To avoid the Contract’s Cost Overrun
CLAIMS
WON BY CONTRACTOR WON BY EMPLOYER
INCREASE OF CONTRACT PRICE CONTRACT PRICE NOT INCREASE
POSSIBLY BAD QUALITY POSSIBLY PROJECT

COMPLETION DELAY
IMPACT TO THE EMPLOYER DELAY IN OPERATION OF THE PREMISES

FOR REVENUE
© Sarwono Hardjomuljadi
BACKGROUND
CASES

FIDIC CONDITIONS OF CONTRACT FOR CONSTRUCTION, 1st
Edition, 1999
OWNER
EMPLOYER
CONTRACTOR
ENGINEER
Constructor
Consultant (E, P) (C)
Contractual
Supervisory
Consultancy
© Sarwono Hardjomuljadi
HUBUNGAN
FIDIC CONDITIONSKERJA FIDIC CONDITIONS
OF CONTRACT FOR EPC/OF CONTRACT
TURNKEY FOR
PROJECT,
EPC/
1st 1999 PROJECT, 1st Edition, 1999
TURNKEY
Edition,
Owner
EMPLOYER CONTRACTOR
ENGINEER ENGINEER
Constructor
( EPC)
Contractual In House Consultant

Supervisory
Joint Operation
© Sarwono Hardjomuljad
BACKGROUND
CASES

There is lack of knowledge on EPC/Turnkey Contrcat
That is why they choose to execute the projects by

using their own standard conditions of contract which is
actually the so called modified FIDIC Conditions of
Contract for EPC/Turnkey Project.

COMMON MISTAKES IN THE IMPLEMENTATION OF EPC CONTRACT
The reasons of using EPC/Turnkey Contract for most projects are:

1. Time constraint to complete the project on time since the delay in completion
may affect the operation of the premises and consequently will delay the
collecting of the revenue.
2. No design available at that time.
By using the EPC/Turnkey Contract, the Employer thought that they already
shift the risks to the contractor side, but EPC/Turnkey Contract with too limited
information or too simple basic design would create problems in the
procurement process, because the tender proposal must be higher (because
the contractor will include the risk which may occured). If case that the
employer could accept this higher tender proposal, the use of EPC/Turnkey may
be recommended.
The condition might be worsen since most of conditions of contract was “tailor-
made” and was not standardized. Instead of controlling the contract price, a
modified EPC/Turnkey Contract would create more problems and finally
everything

BACKGROUND
CASES

“Unforeseeable physical conditions” is the contractor’s
favorite clause:
The term ”Unforeseeable Physical Conditions (UPC)” and
the like, is a contractual term specifically used in most of
Standard General Conditions of Contract. The spirit of
clause related to “Unforeseeable Physical Conditions”
requires the contractor to observe the site condition from
time to time so he is able to find that condition timely

Sub-Clause 4.12 Unforeseeable Difficulties
Except as otherwise stated in the Contract:
(a) the Contractor shall be deemed to have obtained all
necessary information as to risks, contingencies and other
circumstances which may influence or affect the Works;
(b) by signing the Contract , the Contractor accepts total

responsibility for having foreseen all difficulties and costs of
successfully completing the Works; and
(c) the Contract Price shall not be adjusted to take account of

any unforeseen difficulties or costs.

Clause 4.12 Unforeseeable Physical Conditions
In this Sub-Clause “physical conditions” means natural physical
conditions and man made and other physical obstructions and
pollutants, which the Contractor encounters at the Site when
executing the Works, including sub-surface and hydrological
conditions but excluding climatic conditions.
If the Contractor encounters adverse physical conditions which he
considers to have been Unforeseeable, the Contractor shall give
notice to the Engineer as soon as practicable.

Sub-Clause 13.1 Right to Vary
Variations may be initiated by the Employer at any time prior to issuing the taking
Over Certificate for the Works, either by an instruction or by request for the
contractor to submit a proposal.
A Variation shall not comprise the omission of any work which is to be carried out
by others.
The Contractor shall execute and be bound by each Variation, unless

the Contractor promptly gives notice to the Employer stating (with
supporting particulars) that:
(i) the Contractor cannot readily obtain the Goods required for the
Variation,
(ii) it will reduce the safety or suitability of the Works, or
(iii) it will have an adverse impact on the achievement of the
Performance Guarantees. Upon receiving this notice, the Employer
shall cancel, confirm or vary the instruction.

Sub-Clause 13.1 Right to Vary
Variations may be initiated by the Employer at any time prior to issuing the taking Over Certificate for the
Works, either by an instruction or by request for the contractor to submit a proposal.
The Contractor shall execute and be bound by each Variation, unless the Contractor promptly gives
notice to the Employer stating (with supporting particulars) that the Contractor cannot readily obtain the
Goods required for the Variation. Upon receiving this notice, the Employer shall cancel, confirm or vary
the instruction.
Each Variation may include:
(a) changes in the quantities of any item of work included in the Contract
(however, such change do not necessarily constitute a Variation),
(b) changes to the quality and other characteristics of any item of work,
(c) changes to the level, positions and/or dimension of any parts of the Works,
(d) omission of any work unless it is to be carried out by others,
(e) any additional works, Plant, Materials or services necessary for the
Permanent Works, including any associate Test on Completion, boreholes and
other testing and exploratory work or,
(f) changes to the sequence or timing of the execution of the Works.

Sub-Clause 14.1 The Contract Price
Unless otherwise stated in the Particular Conditions:
(a) payment of the Works shall be made on the basis of the lump sum
Contract Price, subject to adjustments in accordance with the
Contract; and
(Conditions of Contract for EPC/Turnkey Projects -1999)
Sub-Clause 14.1 The Contract Price

(a) the Contract Price shall be agreed or determined under Sub-Clause 12.3
[Evaluation] and be subject to adjustment in accordance with the Contract.
(Conditions of Contract for Construction-1999 and MDB Harmonised
Edition-2006)
The above sub-clause shows that the Contract Price in EPC Contract is
“fixed contract price”, means that in case there are some works
necessary to be done on completing the Work (Constructive Change
Order), such cost “shall be added to the contract price” and not “shall be
included in the Contract Price” as for the cost of additional work in the
Construction Contract.
Sub-Clause 17.4 Consequences of Employer Risks
If the (Contractor suffers delay and/or incurs Cost from rectifying this lost or
damage, the Contractor shall give a further notice to the Employer and shall be
entitled subject to Sub Clause 20.1 [Contractor’s Claim]
b) payment of any such Cost, which “shall be added to” the Contract
Price.
(Conditions of Contract for EPC/Turnkey Project-1999)
Sub-Clause 17.4 Consequences of Employer Risks

If the Contractor suffers delay and/or incurs Cost from rectifying this lost or
damage, the Contractor shall give a further notice to the Employer and shall be
entitled subject to Sub Clause 20.1 [Contractor’s Claim] ], reasonable profit on
the Cost shall also be included.
b) payment of any such Cost, which “shall be included in” the Contract
Price, in the case of sub-paragraph (f) and (g) of Sub-Clause 17.3
[Employer’s Risk], reasonable profit on the Cost shall also be included.
(Conditions of Contract for Construction-1999 and MDB Harmonised
Edition-2006)

VARIATION Clauses VARIATION Clauses
DELETED EXIST
“UNFORESEEABLE” Clauses “UNFORESEEABLE ” Clauses

EXIST EXIST
VARIATION Clauses VARIATION Clauses

DELETED EXIST
“UNFORESEEABLE” Clauses “UNFORESEEABLE” ClauseS
DELETED DELETED

Sub-Clause 2.1 Right of Access to the Site
If no such time is stated in the Particular Conditions, the Employer shall give the
Contractor right of access to, and possession of, the Site with effect from the
Commencement Date.
submitted under Sub-Clause 8.3 [Programme].
Sub-Clause 2.1 Right of Access to the Site

If no such time is stated in the Contract Data, the Employer shall give the
Contractor right of access to, and possession of, the Site within such
times as required to enable the Contractor to proceed without
disruption in accordance with the programme

Sub-Clause 2.5 Employer’s Claim
The notice shall be given as soon as practicable after the Employer became aware
of the event or circumstances giving rise to the claim.
Sub-Clause 2.5 Employer’s Claim

The notice shall be given as soon as practicable and no longer than 28 days after
the Employer became aware, or should have become aware, of the event or
circumstances giving rise to the claim

Sub-Clause 3.5 Determinations
The Employer shall give notice to the Contractor of each agreement or
determination, with supporting particulars.
Sub-Clause 3.5 Determinations

The Engineer shall give notice to both Parties of each agreement or
determination, with supporting particulars, within 28 days from the receipt of
the corresponding claim or request except when otherwise specified

Sub-Clause 3.5 Contractor’s Obligation
The Contractor shall design, execute and complete the Works in accordance
with the Contract, and shall remedy any defects in the Works. When
completed, the Works shall be fit for the purposes for which the Works are
intended as defined in the Contract.
Sub-Clause 3.5 Contractor’s Obligation

The Contractor shall design (to the extent specified in the Contract), execute
and complete the Works in accordance with the Contract and with the
Engineer’s instructions, and shall remedy any defects in the Works.

Sub-Clause 3.5 Performance Security
The Contractor shall deliver the Performance Security to the Employer within
28 days after both Parties have signed the Contract Agreement. The
Performance Security shall be issued by an entity and from within a country
(or other jurisdiction) approved by the Employer, and shall be in the form
annexed to the Particular Conditions or in another form approved by the
Employer.
Sub-Clause 3.5 Performance Security

The Contractor shall deliver the Performance Security to the Employer within
28 days after receiving the Letter of Acceptance, and shall send a copy to the
Engineer. The Performance Security shall be issued by a reputable bank or
financial institution selected by the Contractor, and shall be in the form
annexed to the Particular Conditions, as stipulated by the Employer in the
Contract Data, or in another form approved by the Employer

Sub-Clause 4.10 Site Data
The Contractor shall be responsible for verifying and interpreting all such
data.
The Employer shall have no responsibility for the accuracy, sufficiency or
completeness of such data, .......................
Sub-Clause 4.10 Site Data

The Contractor shall be responsible for interpreting all such data.

Sub-Clause 4.13 Rights of Way and Facilities
The Contractor shall bear all costs and charges for special and/or temporary
rights-of-way which he may require, including those for access to the Site.
Sub-Clause 4.13 Rights of Way and Facilities

Unless otherwise specified in the Contract the Employer shall provide
effective access to and possession of the Site including special and/or
temporary rights-of-way which are necessary for the Works.

Sub-Clause Commencement of Works
Unless otherwise stated in the Contract Agreement:
(a) the Employer shall give the Contractor not less than 7 days’ notice of the
Commencement Date; and
(b) the Commencement Date shall be within 42 days after the date on which
the Contract comes into full force and effect under Sub-Clause 1.6 [Contract
Agreement].
Sub-Clause COMMENCEMENT OF wORKS

Except otherwise specified in the Particular Conditions of Contract, the
Commencement Date shall be the date at which the following precedent
conditions have all been fulfilled and the Engineer’s instruction recording the
agreement of both Parties on such fulfilment and instructing to commence the
Work is received by the Contractor:
BACKGROUND
CASES

In the implementation of EPC/Turnkey Contract for a Coal Power Plant Project P, the
Contractor was responsible to construct the pier for unloading the coal.
Based on the original design, the length of the pier was X meter but based on the
supporting data of the sea level, Contractor A in his bid proposed to reduce the pier length
into Y meter, where Y < X meter which was then agreed by the Employer. Due to that, the
bid price submitted by Contractor A was lower than the other contractors.
After the price and technical evaluation, Contractor A was then appointed as the
Contractor for the Coal Power Plant Project P to conduct the design, engineering,
procurement and construction works including the pier. During the construction, the
actual sea water level was lower than predicted by the contractor when preparing the
design. The ship was consequently unable to unload and the coal supply would be
disrupted.
The Contractor had the schedule of rates and prices attached to the contract, so in order
to avoid further failure, the Employer instructed the Contractor to use the former
Employer’s design. The final price of the pier then became even higher than the original
price of the pier with the length of X meter

In the construction of a Coal Power Plant Q, the foundation was originally
designed using pile foundation with a certain depth, say X meter, but during the
execution of the work the hard rock was found deeper, say Y meter where Y > X.
In the contract, there was schedule of rates and prices attached to the contract
for foundation works. It could be considered by the Contractor that the payment
for this work would be based on such unit price.

THANK YOU

02 - FIDIC Jakarta C Presentation 2011 Final - Mr. Sarwono

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FIDIC EPC/Turnkey Contract,

understanding and its implementation

Dr. Sarwono Hardjomuljadi

FIDIC International Training Seminar

EPC VS CONSTRUCTION CONTRACT

REASON OF CHOOSING EPC CONTRACT

RELATED CONTRACT CLAUSES

FIDIC International Training Seminar

(Bryan A.Garner (2004): “Black’s Law Dictionary”, Thomson West)

Martin and Law (2006) “Contract is a legally binding agreement.

FIDIC International Training Seminar

John Adriaanse (2007) “A variety of factors makes a construction

John Adriaanse (2007): “Construction Contract Law”

FIDIC International Training Seminar

Loan from international Use of self financing

Using acknowledged Tailor made standard

Incompliance to Improper modified

FIDIC International Training Seminar

WON BY CONTRACTOR WON BY EMPLOYER

INCREASE OF CONTRACT PRICE CONTRACT PRICE NOT INCREASE

POSSIBLY BAD QUALITY POSSIBLY PROJECT

IMPACT TO THE EMPLOYER DELAY IN OPERATION OF THE PREMISES

EPC VS CONSTRUCTION CONTRACT

REASON OF CHOOSING EPC CONTRACT

RELATED CONTRACT CLAUSES

FIDIC International Training Seminar

Contractual In House Consultant

EPC VS CONSTRUCTION CONTRACT

REASON OF CHOOSING EPC CONTRACT

RELATED CONTRACT CLAUSES

FIDIC International Training Seminar

That is why they choose to execute the projects by

FIDIC International Training Seminar

The reasons of using EPC/Turnkey Contract for most projects are:

FIDIC International Training Seminar

EPC VS CONSTRUCTION CONTRACT

REASON OF CHOOSING EPC CONTRACT

RELATED CONTRACT CLAUSES

FIDIC International Training Seminar

FIDIC International Training Seminar

(b) by signing the Contract , the Contractor accepts total

(c) the Contract Price shall not be adjusted to take account of

FIDIC International Training Seminar

FIDIC International Training Seminar

The Contractor shall execute and be bound by each Variation, unless

FIDIC International Training Seminar

FIDIC International Training Seminar

Sub-Clause 14.1 The Contract Price

Sub-Clause 17.4 Consequences of Employer Risks

FIDIC International Training Seminar

“UNFORESEEABLE” Clauses “UNFORESEEABLE ” Clauses

VARIATION Clauses VARIATION Clauses

FIDIC International Training Seminar

Sub-Clause 2.1 Right of Access to the Site

FIDIC International Training Seminar

Sub-Clause 2.5 Employer’s Claim

FIDIC International Training Seminar

Sub-Clause 3.5 Determinations

FIDIC International Training Seminar

Sub-Clause 3.5 Contractor’s Obligation

FIDIC International Training Seminar

Sub-Clause 3.5 Performance Security

FIDIC International Training Seminar