1

UNIVERSITI TEKNOLOGI MALAYSIA

MASTERS OF CONSTRUCTION CONTRACT MANAGEMENT

RESEARCH PROPOSAL

MOHD SYAFEI AHMAD

RESPONSIBILITIES OF THE CONTRACTOR IN

ENGINEERING PROCUREMENT CONSTRUCTION (EPC)
CONTRACTS

IC NO: 761206-01-5993
 2

RESPONSIBILITIES OF THE CONTRACTOR IN

ENGINEERING PROCUREMENT CONSTRUCTION (EPC)
CONTRACTS

1.0 BACKGROUND INFORMATION

Design and Build, (also known as Package Deal or Turnkey) is known as EPC (Engineering
Procurement Construction) or EPIC (Engineering Procurement Installation Construction) in
heavy/offshore engineering projects. These types of procurement system are renowned by its
straightforward and singular contractual interface between the employer and the contractor.

Design and Build has becoming very common around the world. A research by the RICS in the UK,
reported that in 1995, 30% of the value of awarded contracts was based on this system, having
multiplied more than six-fold over the past 10 years.1 Evidence from the USA also reflects the same
trend for instance, in 1996, approximately one third of American contractors turnover came from
design and build contracts2. The implementation of Design and Build has widely been used in Asian
region such as Japan. A report in 1994 stated that about half of the construction projects there are
procured through design and build as well. 3

In respond to its popularity, court cases relating to Design and Build and its hybrids have also
becoming more regular, John Davies QC expressed the view that:

…. transactions generally described as package deals or turnkey contracts , or

somewhat more specifically, design and build contracts, are becoming an
increasingly common feature of the building scene (in Viking Grain Storage Ltd v TH
White Installations Ltd & Anor)4

In Design and Build and EPC, the contractor is responsible to carry out the design and construction of
the works, as well as the commissioning and repairs during the defects liability period. This will
provide the client with a single point of responsibility.

1.1 STATEMENT OF PROBLEM

1
RICS (1997), Contracts in Use: A Survey of Building Contracts in Use during 1995 , Construction Law Journal, 13 Const LJ
No 5
2
Kreikemeier, KG (1996), Design-Build: A Concept Whose Time Has Come.. Again! , Construction Business Review,
March/April 1996, p 40
3
Nikkei Architecture (1994), February, pp 207-208, Nikei BP, Tokyo
4
Supra, at p 113
 3

In conventional or traditional construction contract arrangements, design responsibilities typically

delegated to a group of designers employed by the employer. The designers are responsible to
exercise reasonable care, that is, the exercise of professional standards of expertise in design. A
contractor’s obligation in these traditional procurement systems is restricted to complying with the
designs and specifications of materials supplied by the designers. For instance, in Leo Teng Choy v
Beetile Construction 5 it was established that the lines of responsibility are clear, if the specifications
were sufficiently detailed, contractors are under no general higher obligations to produce a better
design for their clients so long as they complied and had no special expertise to be aware of the
design shortcomings in advance.

However, an EPC contract has a different set of obligations altogether. The EPC contractor
guarantees that the completed facility is to be designed suitable for the employer’s intended use. The
contractor is deemed to carry an obligation to produce a facility that is free of defects, conforming to
the criteria set out and suitable for its purpose designated at the outset. In short, the contractor is
under the obligation of a fit for purpose facility. In a classic 19th century case of Francis v Cockerell,6
it was clarified that:
... as a general proposition of law, that where one man engages another to supply
him with a particular article or thing, to be applied to a certain use or purpose, in
consideration of a pecuniary payment, he enters into an implied contract that the
article or thing shall be reasonably fit for the purpose for which it is to be used and to
which it is to be applied.

7
In more recent times, in Viking Grain Storage Ltd v TH White Installations Ltd & Anor , plaintiff has
engaged defendant to design and build a grain storage installation. The facility was delivered to
plaintiff with series of defects and was deemed unfit for its purpose. Plaintiff then sought recovery
from the defendant. In their defence, the defendant argued that the facility was built with good quality
materials and workmanship but did not guarantee that it is fit for purpose. As for the design, the
defendant argues that they had practiced reasonable care like in traditional contracts. It was held that
the defendant’s argument is not valid in a Design and Build contract. Contractor’s overall obligation is
to deliver the project suitable for its intended use. From this case we can conclude that the contractor
has higher liabilities and obligation in Design and Build contracts as all responsibilities from the design
until the completion of the project will be placed on their shoulders.

Al-Sagoff,S.A, & Singh, Bhag (2001) assert that single point responsibility is one of the pull factors
contributing to EPC and Design and Build growing popularity. However, according to their study there
will be inherent problems, when overzealous employers misuse the benefits of single point
responsibility by offloading all risks to the contractor. The problems would be more difficult if
contractors unclear and not fully understand on the impact of a product risk in addition to the
8
construction risk they normally carry .

Besides, the contractor is also responsible to the employer for their design at a higher level to
guarantee fitness for purpose. Invariably, contractors will most likely endorse a limit to these incessant
liabilities by importing limiting terms like those in several standard forms of contracts. This will be
another challenge to EPC or Design and Build to be used effectively, which is to draft clear terms to
satisfy both parties in the contract.
Because of the potential for higher liabilities, it is not surprising in construction practice, that most
disputes will centre on the question of whether or not the contractor is deemed to carry these higher

5
[1982] 2 MLJ 302
6
(1870) LR 5 QB 501; 18 WR 1205
7
(1985) 33 Build LR 103
8
Al-Sagoff, S.A. & Singh, B. (2001). Design and Build Construction Contracts: A Conflict Between Law and
Practice?, Malayan Law Journal 1, 71-86
 4

9
obligations towards the employer (Al-Sagoff, S.A, & Singh, Bhag (2001). Friedlander M. C. (2010), in
his article has included design professional’s standard of care and performance warranties as legal
10
issues that are unique to design-build projects .
The main issue with single point of responsibility is to determine the extent to contractor’s
responsibilities in design and delivery of the project. This has to be done before the signing of an EPC
contract. All the terms have to be specified and gaps have to be properly addressed in the contracts
documents. However, exploration/research/ study in this regard is still limited and the extent of single
point concept also necessary to be investigated further as it has yet been sufficiently studied.
Therefore, the following objectives are set out to fill out the gap of this area.

1.2 OBJECTIVE

i) To identify the conditions or circumstances where the contractor will be deemed to carry
higher obligations towards the employer in design and performance warranties of an EPC
contract. This study will also set to explore the concept of single point responsibility and
distinguish the extent and limitation of contractor’s obligation.

ii) To recommend potential methods in mitigating the issues.

1.3 SIGNIFICANCE OF THE STUDY

The research findings will help everybody who is about to engage in EPC to improve their
understanding with EPC contracts in terms of confusion surrounding contractors’ obligations to deliver
a project that fit for its intended purpose. Additionally this study would also be useful to the
participants to understand and aware of their rights and limitation under EPC contracts.

1.4 SCOPE

This research will look at relevant research papers, articles, books, journals and court cases on EPC
contracts or any design and build hybrids such as Turnkey and Package Deal. The court cases will
not be restricted to Malaysian cases only. The study will be using EPC and Design and Build
interchangeably.

1.5 RESEARCH METHODOLOGY

In order to achieve the objectives of this study, a systematic process of conducting this study has
been organized. Basically, this study process comprised of five major stages, which involved
identifying the study issue, literature review, data collection, data analysis, conclusion and
recommendations.

Stage 1: Identifying the Research Issues

The research issues will be identified from books, journals and articles. Based on the issues, the

9
Al-Sagoff, S.A. & Singh, B. (2001). Design and Build Construction Contracts: A Conflict Between Law and Practice?, Malayan
Law Journal 1, 71-86
10
Friedlander, M. C. (2010). Legal Issues Unique to Design-Build. Retrieved February 26,2011, from
http://www.schiffhardin.com/media/news/media.110.pdf
 5

objective of the research will be developed. The relevant court decisions will also be reviewed in this
research with the intention of identifying and determining the legal issues surrounding EPC contract
particularly the Single Point of Responsibility concept.

Stage 2: Literature Review

Various documentation and literature in regards to single point responsibility of EPC will be collected
and reviewed to achieve the research objectives and to define what the gap of research is. This
discovery process is essential to identify area that has been covered and area need to be investigated
further/ has not been done. Data will be collected from reading materials in printing form such as
books, journals, research paper, magazines, reports, proceedings, seminar paper as well as
information from the internet. Additionally, this method is important to identify trends and
developments over time in construction industry, as well as the general state of knowledge
concerning EPC contract.

Stage 3: Data Collection

In this stage, after identifying all the background and relevant issues through literature review, legal
cases based on written opinions of courts, which are related to the study issue, will be collected from
different sources such as All England Law Reports, Malayan Law Journals, Singapore Law Report.
The author is targeting to study and analyse the most relevant/significant related cases in construction
industry and heavy engineering.

Stage 4: Research Analysis

Once the related court cases were collected, detailed case analysis will be conducted on the related
legal cases. The review will be conducted critically by reviewing and clarifying all the facts of the
cases.

The issue derived/ extracted from each case will be presented, discussed and compared according to
research objectives.

Stage 5: Conclusion and Recommendation

The whole processes were undergone and the results discovered will be discussed under this
chapter. Several potential topics for further research will be suggested under recommendations and
limitations of the study section.
 6

1. 6 WORK SCHEDULE

21/1 - 1/2 - 7/3 - 14/3 - 21/3 - 28/3 – 4/4 – 11/4 – 18/4 – 25/4 – 2/5 – 9/5 –
ACTIVITIES
28/2 6/3 13/3 20/3 27/3 3/4 10/4 17/4 24/4 1/5 8/5 14/5
Identifying Topic
Research Proposal
Data Collection
Analysing Data
Drafting Report
Preparing Presentation
Viva