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The private sector is learning more towards more Engineering, Procurement and Construction (EPC) contracts when taking on large scale infrastructure projects. In every project, it is necessary to have good contract management in place; otherwise it can have negative consequences for all stakeholders involved. It will also affect the success of the project in terms of project timeline, project costs, project quality, safety aspects and more.
The EPC contracting scheme could work very well for power projects, especially in the cases where the contractor fully understands all legal aspects of the contract, including the allocation of risks. An EPC contract usually covers the following:
- Project management
- Site management and supervision
- Materials and equipment
- Civil works
- Foundation and site infrastructure works
- Transport and installation
Other factors include plant permits, electrical interconnections, and fuel supply arrangements. The contract also includes certain key features of consideration of EPC contracts.
Common disputes occur from time delay, quality or cost overruns. The contract defines the duties and responsibilities of both parties, of which aim to meet the project performance. Specifically, for the EPC projects for the power industry, causes of disputes include:
- Scope of work definition and interface
- Change of orders and notices
- Schedule delays and disruptions
- Associated schedule liquidated damages
- Terminations for default and convenience
- Force majeure or unfair calling of guarantees
One of the main disputes include unclear specification or misunderstanding of contractor’s liability towards the client under the contract. In order to avoid claims regarding the plant functioning and to determine the economic performance of the technology installed, a clear definition of key preconditions and parameters to be measured is strongly recommended.
As projects grow in size and complexity, contracts become more complicated. This brings importance of standardised contract forms to remove the number and frequency of claims besides time and cost overruns.
All in all, the EPC contracting scheme works well with the power industry, especially where the EPC contractor is familiar with all contract details and is fully aware of possible risks resulting from risk-related contract clauses.
The following key factors of a successful project execution under the EPC contract scheme:
- Application of standardized forms of the EPC contract
- Awareness of the EPC contractor about the extent of responsibility and risk he bears
- Good contract management in place
- Detailed knowledge and understanding of a contract
Managing International EPC Contracts in the Global Power Industry is a 3-day training course held from 13 – 15 March 2019 (Kuala Lumpur). This course can furnish delegates with a thorough understanding of the key components and their interactions of an EPC contract and will provide focus on the key project management issues required for successful project delivery. Attention is on open dialogue and collective problem solving relative to case examples and class exercises. This course has been designed to provide an immersive, value adding experience to delegates who attend. For more information, click below.
Interested to read other articles? Check out: Key Features of Consideration of EPC Contracts
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