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Conceiving and Drafting the Terms of EPC Contracts


R. V. Seckar, FCS, ICSA (UK), Company Secretary, Chandra Group of Companies,
Kakinada.

Engineering, Procurement and Construction Contract, commonly known as EPC


contract are common in the construction of large power plants, infrastructure projects
and the like. While emphasising the care and caution to be taken while drafting the
e-mail : term of such a contract, this article discusses elaborately the various other points to be
rvsekar2007@gmail.com considered in such an exercise.

INTRODUCTION turnkey contracting basis. Under this contract, the FIDIC


Conditions of Turnkey or EPC Projects (famously known as
The term EPC means Engineering, Procurement and
the silver book) is designed to handle scenarios where bids are
Construction contract. An EPC Contractor is engaged in the
invited on an international basis. It has been specifically
construction of large power plants, large industrial plants, giant
designed for use in EPC and BOT contracts. However, law
industrial infrastructure, power transmission and distribution, firms and big contractors will have their own in-house standard
railways and in oil and gas industry. Some of the famous EPC EPC contract and for these parties, silver book may act as a
contractors are ABB, L&T, Uhde India, Tata Projects Ltd, solid reference to update and review their in-house standard
IRCON International Ltd, etc. Under an EPC contract, the forms. For those law firms and contractors, who do not have
contractor offers all the engineering, procurement and standard EPC, contract forms may use the Silver Book for
construction activities. In an EPC contract, the contractor will drafting their EPC contract terms. (Huse 2002:48).
be held responsible for any defect in the construction, design or
However, there are obvious tensions between a project company
performance of the works. Moreover, in an EPC contract, both
and a contractor where a turnkey EPC contract is used. The
the design and construction are placed on the contractor along
drafters of EPC contract has to pay special attention to the
with a harsh standard of performance. Hence, the personnel
allocation of project risks and with specific reference to the
engaged in drafting of EPC contract have to pay special attention drafting of common terms in EPC contracts. Else, the
to the allocation of project risks and with specific reference to contractor’s interest will be affected, and he may have to incur
the drafting of common terms in EPC contracts. Else, the pecuniary losses.
contractor’s interest will be affected, and he may have to incur
pecuniary losses and implementation of the project may be ANALYSIS
delayed. This article analyses the points to be taken into
An EPC Contract is also known as the fast-track contract. It
consideration while drafting the terms of international EPC
combines three stages of construction contract under the ambit
contract and allocation of risks in the EPC contract so that
of one contract. It combines the construction, procurement
interests of both the contracting parties are secured.
and engineering aspects into one single contract. It facilitates
In drafting the EPC contracts, legal practitioners may use the growth on a project to proceed on an overlapping basis
standard form contracts as a basis for their contract document. than if the three stages have been taken over in series.
These template or boiler contracts offer a familiar starting
The “package deal” or “turnkey arrangement” or “design or
point to lessen the drafting trouble and to make easy negotiation.
build “, “cle-en-main” or “EPC” imposes the duty to construct
FIDIC (The Federation Internationale des Ingenieurs Conseils) and design solely on the contractor. There is no standard
of late released a new form of contract that can be used in explanation for each of these terms in the construction sector.
design and construction of projects thereby employing the same The phrase ‘turnkey” connotes the most extreme structure of
to the engineering,procurement and construction contract or placing the design and construction obligation on the
Articles
Conceiving and Drafting the Terms of EPC Contracts
contractor, such that after completion, the employer will be of supplies, materials, equipments and machinery to the
given the key to project to start the operation of the constructed project site.
project. To organise financial functions such as reviewing of
There are potential complex contractual structures in any BOT invoices, forecasting the cash needs and overseeing of
(Build, Operate and Transfer) contract. In majority cases, the accounting records.
BOT projects will employ either an EPC or a turnkey contract In a majority of contracts, often no separate procurement
for the actual construction and design aspect of the contract. contract is employed especially in project financing and for
Hence, a BOT is not a separate style of construction contracting the obvious reasons, a separate engineering contract is not
but rather a technique of financing the project. In case of employed. Instead, the turnkey construction contract is made
BOT contract, the lenders will have considerable sway on the to include all procurement work until the financial closure is
condition of the underlying construction contract including successfully completed. (Hoffman 2008:170).
the prerequisites that such a contract be on a turnkey basis or
in the guise of an EPC contract. Construction Contract
In BOT contract, the operation period between finishing and This contract oversees the complete construction activities of
transfer also offers the transferee a chance to authenticate the the project. Thus, in a construction contract, the contractor
quantity and quality of the productivity of the completed undertakes to offer all constructions – associated services
project work. Accordingly, in a BOT contract, a contractor including organisation of labour, supervision of the
may be obliged to give training of the transferee’s employees construction, management of tools, supplies, construction
before the actual transfer of the project is completed thereby facilities, field engineering and site investigation. (Hoffman
easing any possible tension that may arise in the contract. 2008:170).
The contract provision should be drafted by taking into
consideration the accelerated deterioration of the work at the EPC Contract
time of transfer of the project. Thus, a transferee will be In an EPC contract, the contract structure will be much
required to pay attention to maintain the operator’s incentive complicated as many participants are involved in the
to maintain the workflow properly and to circumvent any implementation of the project. Thus, either an EPC or a BOT
deterioration in the final phase of the contract just before the contract often is not as simple as its definition connotes. There
transfer to the transferee. The operator may in an effort to may be large number of parties involved under complex
save on costs and at the terminal phase of the operating period, contract structure. For instance, in a hydroelectric project, the
the contractor may indulge in a slowdown in the maintenance concerned government has granted a concession to the project
and operating expenditures resulting in accelerated worsening development company. This project development company
of the work scenario. Thus, contract provision in some BOT has in turn entered into separate contracts for the construction
contract is drafted in such a manner by placing the of the facility, its operation and maintenance during such
responsibility on the operator to assume liability for defects concession phase and power purchase agreement (PPA) with
for a shorter period subsequent to the transfer. an electrical supply utility. A consortium of contractors was
assigned with the turnkey contract for the construction of the
VARIOUS TYPES OF CONSTRUCTION facility. Again, each of the turnkey contractors was also an
CONTRACTS equity stakeholder of the EPC contracting company as they
will have to subscribe some portion of the equity of the project
Procurement Contract development company. Further, one of the subsidiaries of the
It provides for the methodical sourcing of work and supplies turnkey contractor was assigned the operation of the facility
for a project. This contract includes stipulations that demand after the completion of the project. Thus, in an EPC or a BOT
the architect or an engineer to perform the following functions: project the contract has to be drafted by taking into account
To frame bidding guidelines for equipment, machinery this complex structure involved in a typical power plant
and supplies. construction contract. Where a project is undertaken by a State
or by a political entity, the EPC contractor assumes further
To carry out an economic evaluation of the bids received; risks in that project as the project may be affected in future. A
To arrange for export licenses and other governmental successor government gaining power, whether it be federal,
permissions, which are essential for the import or export State or local may try to dishonour some part or whole part of
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Conceiving and Drafting the Terms of EPC Contracts
project contract entered into by the predecessor government. law by having recourse to its own international nature. An
A best illustration of this type of action by a successor issue of confiscation will always look at in the background of
government to modify or change an EPC contract entered applicable international law only irrespective of the fact of
into by an earlier government is the Enron-Dabhol power the law preferred by the parties.
project in India. In such cases, it is wise to incorporate Financial institutions and banks will make a further stipulation
termination payments and termination provisions in an EPC while granting finance to the project as to offer them some
contract in favour of Project Company. If the government certainty as to their financial risk. Thus, lenders may be placed
failed to honour its legal commitments, then these damage with a significant amount of certainty if lump-sum bidding or
payments will have to be made by the defaulting government if much risk is placed on the contractor for completion of the
to the project company. It is sound to add a so-called statement project.
of binding impact to other agreements or an implementation
with the host nation. (Hoffman 2008:158). EPC CONTRACT (OLD EXAMPLE)
Further it is prudent to add a waiver of sovereign immunity
clause in the EPC contract if it is entered with a host nation’s Project Company
government or with an entity owned by a host nation. For
instance, in Texaco Overseas Oil Petroleum Co / California
Asiatic Oil Co v. Libyan Arab Republic1, it was held that the Engineering Fabrication EPC Contractor
government cannot employ its sovereignty to ignore obligations Contractor Contractor
and cannot cancel the privileges of the contracting party who
has executed its multiple duties under the contract through an Equipment
internal order of the government. (Hoffman 2008:158). In Vendor
case of sovereign immunity, a government may waive such
immunity either through explicit or implicit actions. In Morgan EPC CONTRACT (NEW EXAMPLE)
Guaranty Trust Co v. Republic of Palau, the Republic’s
sovereign immunity was waived by the President of the Project
Republic while entering into loan agreements with companies Company
of U.S.A origin in respect of construction of power plants.
Later, the financing company sued the Republic when it failed
to make payment under a guarantee and defaulted on its Main
payment obligations. It was held by the court that Republic Contractor
was under obligation to reimburse the guarantors. According EPC
to court, the President of the Republic by signing the agreement Engineering
and by supporting the financing with the “full faith and credit Contractor
of the Republic” has the obligation to honour the commitments
made already. (Hoffman 2008:159).
In Saudi Arabia v. Arabian Oil Co (Armco)2 , it was held by System Vendor Facrication EPC Contractor
an International Arbitration tribunal that laws of Saudi Arabia Contractor
had to be supplemented or construed by the general principles
of law, by the practice and customs and usage in the oil business
and by thoughts of untainted jurisprudence and the defendant’s Equipment
rights could not be “protected in an authentic style by the Vendor
legislation in force in Saudi Arabia.”
In Mobil Oil Iran Inc v. Islamic Republic of Iran3 , as regards
Source: (Wilpert & Fahlbruch 2002:214)
the applicable law in a contract, the Iran-United States Claims
Tribunal has often corroborated its stand on applicability of EPC, TURNKEY AND DESIGN – BID CONTRACT
1. 21 I.L.M 726,735-36. (1982).
2. 27 ILR 117 ,168 (1963).
Dissimilarities exists between these contracts. Under an EPC
3. US CI Trib Rep 3, 64-65 (1987) contract, the contractor offers all the engineering, procurement
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Conceiving and Drafting the Terms of EPC Contracts
and construction. In a design-bid contract, the employer offers chief construction contracts becomes a confront and many
the design, which often includes the description of materials contractors incur major pecuniary losses or attrition of expected
to be used and other major construction parameters. Under a incomes since the most of the construction contractors are
turnkey contract, it is the obligation of the contractor to supply bound by predetermined-priced EPC contracts where they have
the final design of the project. to accept the risk of increases in both supplier and material
costs.
Thus, under EPC contract, the contractor will be held
responsible for any defect in the construction, design or Devoid of a distinctly worded price appreciation provision
performance of the works. The employer has to demonstrate that permits for a modification to the price of the contract due
to what degree resultant damage was caused by defective to the occurrence of an unforeseen event or, an unforeseen
design or by the faulty construction under a design-bid –build increase in the whole-sale prices of major construction related
contract. (Huse 2002: ix). materials, a contractor may have to bear the unbearable
pecuniary loss. Further, an EPC contractor may not get a relief
Under EPC contract, both the design and construction are
as, even if the contract has turned to be onerous, which will
placed on the contractor along with a harsh standard of not normally be adequate legal stances for execution of the
performance. The standard of performance applicable will contract to be exempted by the courts. (Kerur 2005).
be contained in the contract or in the non-existence of any
explicit provision, by the applicable law. Under the Silver Since, EPC contract is a fixed price or lump-sum price contract,
Book, the standard is “fitness for purpose.” As laid down in unless the contract specifically provides for a price increase
due to the occurrence of some modifications or events, it is
English case law namely IBA v. EMI and BICC4 , a turnkey
wise to add a price increase clause in the EPC contract to
contractor is under strict liability to deliver the work ‘fit for
safeguard the interest of the contractor against price volatility
the purpose” for which it was constructed. (Huse 2002:18).
in the near future. For instance, the courts in U.S.A hold parties
To choose the best design and quality of work, in EPC contract, responsible for their contractual agreements. For instance, in
the bidding process will be consisting of five stages; pre- Iowa Electric Light and Power Co v. Atlas Corp5 , the court
feasibility, feasibility, bidding, evaluation of bids and award ordered that the uranium supplier had to honour his contractual
of the contract and the negotiation. Such phased bidding will obligation to supply the uranium to the utility though the price
help the employer to first evaluate the quality of the design at of the Uranium to the supplier had increased considerably
first and then only the bid price. later. This case stresses the significance to include “price
The fitness for purpose standard can be explained a stricter escalation clause” “in an EPC contract to safeguard against
standard than a “professional “duty of care as it places onerous the incurring of financial loss due to price escalation in the
on the contractor for any defect or failure of design to perform later date. Further, in an EPC contract, contractual provisions
to the standards needed. can be included in the contract to pardon performance upon
the happening of discussed events like price increases. In
DRAFTING OF EPC CONTRACTS Eastern Airlines v. McDonnell Douglas Corp, the court held
that the doctrine of force majeure clause will not be applicable
While drafting EPC contacts one should give importance to
where a future event was particularly mentioned in the
the following aspects:
contract. (Hoffman 2008:192).
The Scope and Definition of the Works Since the contractor assumes overall control over the project,
The scope of work has to be clearly drafted and requirement the employer may desire to restrict the capacity of the contractor
of an employer should be drafted precisely to define the to obtain such increases. Generally, courts will insist that a
liability of the contractor for design, construction and contractor must carry out the construction work at the rate agreed
performance. especially in predetermined-priced EPC contracts, which assign
risk and, which do not contain a precise clause permitting for
Increase in the price modification in prices. In the present economic scenario, EPC
contract’s tender prices are towering and service providers insist
The real issue for suppliers and EPC contractors working in that if the project owners are ready to share more risk, then
the current unpredictable materials price inflation scenario such they will get more competitive bids. For instance, EPC contract
as cement, steel etc. is that forecasting, quoting and executing awarded by Dubai municipality are footed on FIDIC contract
4. (1980) , 14 BLR 1 5. 445 U.S 911 ( 1980)
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Conceiving and Drafting the Terms of EPC Contracts
stipulations but so far, do not mirror the suggestion by FIDIC performance tests are to be made before or after such
that terms for modifications in bids for variations in cost should completion. Thus, under the customary design-bid-build
be introduced where it might be unjust for a service provider to contract, the designer and construction contractor will be held
assume the whole of the risk of increasing costs associated with liable for varied yardsticks of performance for the completion
inflation. From the perspective of a project owner, the notion of the works. It is to be noted that designers in many countries
of conveyancing a price-increase provision in a contract may are not needed to undertake for results, but rather method. It
appear like issuing a blank cheque, albeit he might get profit is expected from them that they have higher supreme
out of it. If the contract is allowing the contractor to charge his knowledge on the subject, competent enough and can finish
rate on current prices and any real enhancement, rather than a the design with a rational magnitude of technical skill. For
standard-price quotation with tentative eventualities, in such instance in Surf Realty Corp v. Standing6 , the U.S court held
cases, the project owners might save some handsome money that the designer, while preparing the drawings and design,
and may avoid any unwanted delay and overrun in the timely should exercise his ability and skill, taste and judgement
construction of the project. rationally and without neglect. Thus, this principle needs a
In any EPC contract, the terms should have a price-escalation professional duty of care. (Huse 2002: 18).
provision which should recognise the exact materials regarded
to be unstable and the prices per unit for such project materials Liability for Defects
is to be charged at rates which prevailed at the time when the An EPC contract should include a provision as to decide the
contract is completed. Normally, these provisions should period of time up to which the contractor will be held
illustrate unambiguously that the project owner will be responsible for rectifying any defect that may occur in the
responsible for any increase in price in those basic construction works.
materials like cement, steel and the total price of contract to be
augmented by a settled percentage to offset the loss due to price Consortium or a Joint Venture
escalation. A rational provision will lay out periods of notice
Where a contractor uses a consortium or a joint venture for
for recognition of price augmentation and to shun disagreements
the project, a specific provision will need to be included that
at later dates, to audit and verify the category of documentation
it is essential to elect a representative among consortium with
demonstrating the price increase, the incident that activated such
adequate decision-taking authority to facilitate interaction with
a boost in price of contract, what is the proper assessment of the
the employer.
market price, what are the time periods covered and how frequent
the increase in the contract price can be made. Other matters
Onus for the design supplied by the employer Provisions relating to contractor’s duty to safety and protection,
In an EPC contract, it should be wise to allocate the risk to adhere to local laws and regulations have to be drafted.
pertaining to design supplied by the employer between the
parties by way of specific provision. Allocation of Risk in EPC Contract
In an EPC contract, the risk allocation will be made in the
Employer Risks following manner. The project company will assume the
An EPC contract has to specify the risks associated with the market risk and in a power project, the power purchaser will
employer. accept the risk to a limited extent. The EPC contractor will
assume the design, construction and commissioning risks. The
Performance Guarantee risks arising out of operation and maintenance will be borne
There should be provision in the EPC contract for the by the O& M contractor. The overall political risk like
performance guarantee by the contractor by way of providing rebellion, war and delays by authorities will be borne by the
bank guarantee or other guarantee or by way of retention respective government, mainly through concession agreement.
money. It is recommended that the respective government should
accept these political risks as they are the sole party who could
Completion either influence or control it and can lessen its impacts.
An EPC contract should contain a provision regarding the Provisions concerned with risk allocation have to be drafted so
extent and nature of completion needed before the employer that it would reflect the language of the agreement and other
takes over the works. It is to be ascertained whether any 6. 78 S.E .2d 901 at 907 (1953)
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Conceiving and Drafting the Terms of EPC Contracts
concession. Further, it has to take into account the considerations 7. In some scenarios, the owner and the contractor
like identical language for extension of time and force majeure may agree to share losses and responsibilities equally
events. Such back-to-back language minimises the extent of or jointly. Here, only to the degree of a
gaps and vagueness between various agreements. proportionate share of negligence, each party would
A dispute resolution clause in the EPC contract will not only agree to indemnify each other. Thus, by agreement
save time but also cost and helps to find a fast solution to any or through a court or through a commercial
issue between the parties. (Huse 2002: 48). arbitration, each party’s liability will be determined
in case of loss due to negligence.
There are four fundamental risk-of-loss methodologies that
an owner can impose in his EPC contract. In the case of EPC hydro contracts, contractors are always
reluctant to forward their bid unless they are short listed in a
(a) Demand the EPC contractor to wholly responsible and prequalification bid due to expenses and time involved in this
to totally indemnify the owner, all for all, possible losses. process. Minimal design particulars are offered by the project
(b) Discharge the EPC contractor from indemnity and companies in the prequalification bid document. This will cast
responsibility and to fully reimburse or indemnify the on the tenderer the onus of developing the design to the point
owner for all damages or losses. where he can confidently submit a firm price. In hydro electric
(c) Impose an overall ceiling limit on the EPC contractor’s EPC contract, more than four or more companies are to be
responsibility and indemnify for selected or for all losses. involved in a consortium to offer the overall services to be
provided, which habitually set hurdles to the bidding process.
(d) Adjust or modify one or more of the approaches
(Head 2000:5). In hydro electric projects, the management of
mentioned in tune with the owner’s predestined risk
risks due to flooding during construction of the project is
management program. (Bramble & West 1999:105)
effectively a commercial decision, thereby balancing the
The other parameters are as follows : incremental expenses of augmented flood safeguard against
1. EPC contractor should be imposed with the the chances and outcomes of particular floods happening. This
sufficient risk to motivate them to execute the is mainly a concern of risk allocation between the contractor,
contract in a professional style. However, imposing the owner and the insurer and normally would not involve the
of unreasonable or excessive risk will hinder host government. (Head 2000:19). For instance, in Turkey,
innovation and maybe yield negative results. geological risk in a hydro project is passed to the contractor
from the project company. This is an obvious departure from
2. Risk allocation should be footed on the profit or
the usual contract EPC terms. When the availability of work
return that the party espousing risks that may
is very limited, some contractors dare to accept such risks,
actually have anticipated from its participation in
although it is highly debatable whether it is in either party’s
the project.
interest. In Philippine’s Casecnan power project, which
3. The extent of control over the risk to be distributed included about twenty-six kilometre tunnel and an underground
must be taken into account in establishing a suitable power manufacturing unit, for which virtually no site
allocation of responsibility. investigation was possible and the contractor undertook the
4. It should be seen that the party is having the ability whole risk of unpredictable ground scenarios within his fixed
to cover the risk through insurance or by other price quote. However, he failed midway through the contract
methods, which are a crucial element in risk and had to be replaced. Thus unforeseen risk may cost an
allocation. ( Bramble and West 1999 :101) EPC contractor his job and his resources.
5. Full indemnity and responsibility are obtained from Likewise, in Malaysia’s Bakun hydroelectric project, an EPC
EPC contractors by owners for all equipments and contractor made a lump sum price bidding with no price
tools either owned or rented by the contractor used escalation for unforeseen risks. In that project, excavation of
in the project site. tunnels disclosed weaker rock conditions than expected, needing
6. For all equipments and tools supplied or loaned by an addition of the steel liner. This is a common issue, but it
the owner to the contractor, full responsibility is cannot be anticipated in advance and may materialise only during
the construction stage and will have huge cost implications that
placed on the EPC contractor for use in carrying
cannot be borne by the contractor due to its magnitude, especially
out the work and many owners contractly negate
in a lump sum EPC contract where if there is any absence of
such representation or fitness for such an equipment
provision of price inflation for such an eventuality, the EPC
and tool.
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Conceiving and Drafting the Terms of EPC Contracts
contractor may be able to restructure the cost effect by making reasons. Reading together with sub-clause 4.10, it imposes all
some changes in design, but it may have an impact on the final obligations on the contractor for unforeseen site scenarios. Thus,
quality of the project. Further, such design change may end in the contractor runs this risk despite whether the employer offered
a debate over whether the proposed changes can be acceptable the information on the original site conditions or where the site
under the contract. (Head 2000:57). conditions were, in fact, unpredictable. In fact, the aftermath
In an EPC or turnkey project, competitive price bidding can of this clause is to make the contractor responsible for
be made possible with certain kind of sharing of risks as unpredictable or conditions, which are wholly out of the control
mentioned below. of a contractor. Thus, under Silver Book, the contractor has the
EPC contract containing both a lump sum and re- responsibility to bear the risk associated with unforeseen site
measurable portion and re-measurement is mainly conditions. In fact, sub-clause 4.12 of the Silver Book spells
applicable to civil works and unexpected geological risks, out that there shall be no modification in the contract price to
especially in case of flooding, weaker rock conditions take account of any unforeseen costs or difficulties. For instance,
or other unforeseeable events. countries like Malaysia and Hong Kong allocate risk for differing
conditions solely on the contractor in the government contracts.
Restricting the re-measurable portion of contract; hence (Huse 2002:144).
the owner undertakes lesser risk leaving the contractor
to assume an unlimited risk. Sub-Contractor
A stratum approach where the employer, insurance Though an EPC contractor is authorised to entrust the work
company and the contractor bear some portion of risk in to sub-contractors, the Silver Book sub-clause 4.4 spells out
a predefined order.
some mandatory provisions with regard to sub-contractors.
Cost overrun has to be shared on a predetermined The above sub-clause imposes the following :
percentage basis.
An EPC contractor cannot sub-contract the whole of the
Specific geological associated risk in the construction is work to sub-contractors.
to be passed on to the owner or the contractor but with
It makes the EPC contractor liable for the activities of
reimbursement of additional expenses to avoid what had
his agents, sub-contractors and employees.
happened in Casecnan power project and in Bakun
hydroelectric project. Force Majeure Clauses
Thus, an EPC contract may have risk-sharing formulas and in
Due to the occurrence of an unexpected event, if performance
case of any additional cost of risk due to happening of an
becomes “impossible”, a party may be condoned from carrying
unforeseen incident has to be met by sponsors of the project
out a commitment under an EPC contract under the most legal
through pumping in contingent equity, mainly to cater for the
system. However, there exists many numbers of legal precedents
possible cost overruns. (Head 2000:57).
where courts were of the opinion that the doctrine of
For instance, India was less successful in attracting private impossibility cannot be extended just because completion of
finance for its hydropower projects, mainly due to some risk the contract will happen to be more costly than earlier expected.
allocation, which is hazardous to any project contract. Hence, Majority of contractors are under the wrong impression that the
it revised power policy to encourage private foreign investment availability of the force majeure clause will help them to succeed
in its hydroelectric projects. The new pragmatic policies of in their claim. It is to be noted that a force majeure clause is
the Indian government acknowledged the necessity to offer included into a contract as a way to safeguard parties if a section
the private developer safeguard against wide varieties of natural of the contract could not be completed due to the occurrence of
risk over which such contractor has no sway. Thus, for risk some extraordinary incidence, which falls outside the control
arising out of an unforeseen natural predicament, EPC of the parties and which could not have been forbidden using
contractor will not be held liable. This may encourage a large
rational care. Force majeure clause can ordinarily be seen in all
number of international bidders to participate in a contract
the construction contracts but normally such provision is meant
and may result in cost savings and timely completion of the
to grant a contractor some extra period to complete the contract.
project (Head 2000:62).
Hence, whereas a force majeure clause may facilitate a contractor
Ground Conditions some additional time to acquire materials that are in acute
shortage, it is doubtful of help to him if he is compelled to bear
Sub-clause 4.12 of the Silver Book acts as a reference for several much escalated prices of material than he formerly forecasted.
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Conceiving and Drafting the Terms of EPC Contracts
The reality is that judges normally do not incline to permit methodologically drafted EPC contract will pay special attention
somebody to get away from an obligation under a contract under to the allocation of project risks and with specific reference to
the pre-text of force majeure clause. (Kerur 2005). the drafting of common terms in EPC contracts. Else, the
contractor’s interest will be affected, and he may have to incur
CONCLUSION pecuniary losses. Thus, while drafting the terms of international
Of late, FIDIC has released a new form of contract that can be EPC contract and allocation of risks in the EPC contract, serious
considerations should be given while drafting of terms so that
used with design and construction of projects employing
interests of both the contracting parties are properly secured.
engineering, procurement and construction contract or turnkey
contracting. Under this contract, the FIDIC conditions of List of Reference
turnkey or EPC projects (known as the silver book) are Bramble Barry B & West Joseph D. (1999). Design Build
designed to handle scenarios where bids are invited on an Contracting Claims. Illinois: Aspen Publishers Online.
international basis. It has been specifically designed for use in Head, Chris R. (2000). Financing of Private Power Projects. New
EPC and BOT contracts. However, law firms and large York: World Bank Publications.
contractors will have their own in-house standard EPC contract
and for these parties silver book may act as a solid reference Hoffman Scott L. (2008). The Law and Business of International
to update and review their in-house standard forms. For those Project Finance. Cambridge: Cambridge University Press.
law firms and contractors, who do not have standard EPC, Huse, Joseph A. (2002). Understanding and negotiating turnkey
contractor or firms may use the Silver Book for drafting their and EPC contracts. New York: Sweet & Maxwell.
EPC contract terms. (Huse 2002: 48). Kerur Sachin [June 16 2005]. Sharing the Risks. (Online) available
Thus, a legal draftsman has to use not only standard terms as from http://www1.fidic.org/resources/contracts/national/
mentioned in the silver book but also to use his experience to dubai_jun05.asp [accessed 30 October 2009).
cover force majeure, price escalation, sovereign immunity, Wilpert Bernhard & Fahlbruch Babette. (2002). System Safety:
unforeseen ground scenarios to safeguard the interest of the Challenges and Pitfalls of Intervention. New York: Emerald Group
contracting parties. A well planned and conceived and Publishing.