epc-contract

# EPC Contract

Drafts a turnkey EPC contract establishing rights, obligations, risk allocations, and technical requirements between a project owner and contractor for design, procurement, construction, testing, and commissioning of an industrial facility.

## Prerequisites

Gather before drafting:

1. **Project description** — facility type, capacity, throughput specs, location
2. **Party details** — legal names, entity types, jurisdictions, addresses, authorized signatories
3. **Governing documents** — RFPs, term sheets, LOIs, precedent agreements
4. **Pricing structure** — lump-sum, GMP, cost-plus, or hybrid
5. **Schedule** — target milestones, NTP conditions, substantial/final completion dates
6. **Performance requirements** — output capacity, efficiency, emissions, availability guarantees
7. **Jurisdiction** — governing law, regulatory/permitting regime
8. **Insurance requirements** — owner's minimum coverage expectations

## Contract Sections

Draft all 14 sections in order.

### 1. Recitals & Parties

- **Owner**: legal name, entity type, jurisdiction, address, tax ID, authorized rep
- **Contractor**: same; if JV/consortium — lead contractor, liability structure (joint & several or allocated)
- **Recitals**: owner's objectives, contractor qualifications, turnkey intent

### 2. Definitions

Define at minimum:

| Term | Criteria |
|---|---|
| Substantial Completion | Work complete except punch list; testing passed; performance met; regulatory approvals obtained; O&M docs delivered |
| Final Completion | Punch list closed; all performance tests passed at guaranteed levels; reliability demo done; training complete; final documentation |
| Contract Price | Fixed amount, inclusions, adjustment mechanisms |
| Change Order | Written modification to scope, schedule, or price |
| Force Majeure | Natural disasters, war, epidemics, government action, non-party labor disputes |
| Defect | Non-conformance with specs, drawings, guarantees, or codes |
| Warranty Period | Commencement trigger and duration |

Include project-specific technical terms referencing industry standards (ASME, IEEE, ISA).

### 3. Scope of Work

**A. Engineering** — All disciplines (civil/structural, mechanical, electrical, I&C, process, environmental, safety); conceptual through detailed.

**B. Procurement** — Major equipment (turbines, generators, compressors, vessels, heat exchangers), bulk materials, spare parts, special tools. Identify owner-furnished items with interface requirements.

**C. Construction & Installation** — Site prep, civil, foundations, structural, mechanical/piping, electrical/instrumentation, insulation/painting/fireproofing. Reference applicable codes.

**D. Testing & Commissioning** — Factory acceptance → pre-commissioning → integrated systems → performance testing → reliability demo. Include owner witness rights and acceptance criteria.

**E. Ancillary** — Permitting (allocate owner vs. contractor), training (classroom + hands-on), documentation deliverables (design basis, as-builts, O&M manuals — specify format/schedule).

**F. Exclusions** — Land acquisition, off-site utilities to boundary, owner personnel, financing, owner-controlled insurance, owner permits.

### 4. Commercial Terms

**Contract Price**: Exact amount and currency. Pricing type (lump-sum/GMP/cost-plus/hybrid). Confirm all E, P, C, testing, commissioning, training, documentation included. Adjustments limited to owner changes, differing site conditions, force majeure, change in law.

**Payment Schedule**:

| Milestone | Typical % | Conditions |
|---|---|---|
| Advance payment | 5–10% | Advance payment guarantee required |
| Engineering milestones | Per deliverable | Basic/detailed design completion |
| Equipment delivery | Per item value | Delivery receipts |
| Construction progress | Monthly | Joint measurement/verification |
| Substantial Completion | Major tranche | Less retention |
| Final Completion | Balance + retention | All guarantees satisfied |

- **Retention**: 5–10%; partial release at Substantial Completion, balance at Final Completion; contractor may substitute bond/LC
- **Invoicing**: Submit within [X] days; owner review 15–30 days; payment within 30 days of approval; interest on late undisputed amounts
- **Taxes**: Allocate sales tax, VAT, customs duties, import taxes

### 5. Schedule

- **Commencement**: NTP conditions precedent (site access, permits, financing)
- **Duration**: Calendar days/months from NTP to Final Completion
- **Key milestones**: Design → PO awards → long-lead delivery → construction start → mechanical completion → commissioning → Substantial Completion → performance testing → Final Completion
- **Certification**: Contractor notice → owner inspection → completion certificate

**Delay Management**:

| Delay Type | Time Extension | Cost Recovery |
|---|---|---|
| Force majeure | Yes | No |
| Change in law | Yes | No |
| Government permit delays | Yes | No |
| Owner-caused delays | Yes | Yes |
| Owner scope changes | Yes | Yes |
| Differing site conditions | Yes | Yes |

- Notice: prompt written notice + cause + critical path impact + time request
- **Delay LDs**: Daily/weekly rate for late Substantial Completion; cap 5–15% of contract price
- **Early completion bonus** (optional): per day/week ahead of schedule

### 6. Performance Guarantees

**Guaranteed Parameters** (select applicable):

| Parameter | Value | Reference Conditions | Test Standard |
|---|---|---|---|
| Output capacity | [kW/units] | ISO or site ambient | ASME PTC |
| Efficiency/heat rate | [%/BTU/kWh] | Fuel spec, ambient | ASME PTC |
| Emissions | [g/unit] per pollutant | Operating conditions | EPA/regulatory |
| Availability | [%] | Defined period | Contract formula |

- Include correction curves for reference conditions
- Test protocol: timing, duration, valid runs, stability criteria, instrumentation, data recording
- Retest rights: optimization period; max retests specified

**Performance LDs**:

| Shortfall | LD Formula | Cap |
|---|---|---|
| Capacity | $/unit below guarantee | [X]% of contract price |
| Efficiency | PV of increased operating costs | [X]% of contract price |
| Emissions | Cost of additional controls | [X]% of contract price |

- Rejection threshold: shortfall exceeding [X]% → owner may reject facility

### 7. Change Management

- Formal written change order required before work begins (emergency exception with retroactive approval)
- Contractor proposal within 10–20 business days: scope, cost breakdown, markup (10–20% OH&P), schedule/CPM impact, effect on guarantees
- Pricing: lump-sum, unit price, T&M, or cost-plus
- Owner review: 15–30 days
- Disputed changes: contractor proceeds under directed change order; pricing resolved via dispute resolution
- Cumulative changes exceeding [X]% trigger renegotiation or termination-for-convenience rights

### 8. Indemnification & Liability

**Contractor indemnifies Owner** for: bodily injury/death, property damage, regulatory violations, IP infringement, environmental contamination, breach.

**Owner indemnifies Contractor** for: owner negligence/willful misconduct/breach; defects in owner-furnished items.

**Exceptions**: Claims from sole negligence of indemnified party. Joint negligence: comparative fault.

**Procedure**: Prompt notice → indemnifying party controls defense → cooperation → settlement limits.

**Liability caps**:
- Consequential damages mutually excluded (exceptions: gross negligence, willful misconduct, confidentiality, IP, environmental)
- Aggregate cap: contract price (or [X]x); uncapped: indemnity, IP, willful misconduct, fraud

### 9. Insurance

| Coverage | Minimum Limit | Requirements |
|---|---|---|
| CGL | $10–50M per occurrence/aggregate | Additional insured; primary & non-contributory |
| Workers' Comp | Statutory per jurisdiction | Employers' liability $1M |
| Auto Liability | $1M CSL | All owned/hired/non-owned |
| Professional Liability (E&O) | $5–25M per claim/aggregate | Claims-made with 3–5 year tail |
| Builder's Risk | Full replacement value | Specify owner vs. contractor placement |
| Marine Cargo | Full shipment value | If international; origin to site |
| Pollution Liability | Project-appropriate | If environmental risk |
| Umbrella/Excess | Project-appropriate | Above primary policies |

All policies: owner as additional insured, waiver of subrogation, 30-day cancellation notice, certificates before work starts.

### 10. Warranties

- **Scope**: All work free from defects in materials, workmanship, and design
- **Period**: 12–24 months from Substantial Completion; restarts for repaired/replaced items
- **Materials**: New unless specified; suitable for intended purpose
- **Pass-through**: Assign all manufacturer/supplier warranties to owner
- **Defect correction**: Written notice → repair within 24 hours (urgent) to 10 business days (non-urgent) → costs on contractor
- **Self-help**: If contractor fails to correct, owner may correct and charge contractor
- **Security**: Bond or LC, 5–10% of contract price; released on warranty expiration

### 11. Termination

| Trigger | By | Notice/Cure | Contractor Gets |
|---|---|---|---|
| Cause (abandonment, schedule failure, insolvency) | Owner | Written + 10–30 day cure | Work performed only; liable for excess costs |
| Convenience | Owner | Written notice | Work + materials + demobilization + OH (no profit on unperformed) |
| Owner default (non-payment, suspension, breach) | Contractor | Written + cure period | Work + costs + anticipated profit on full contract |
| Extended force majeure (>6 months) | Either | Written notice | Work + costs (no anticipated profit) |

### 12. Dispute Resolution

Tiered process:
1. **Negotiation** — Senior executives, 30 days
2. **Mediation** — Mutually acceptable mediator, 60 days
3. **Binding** — Arbitration (ICC/AAA; 1 or 3 arbitrators; specify seat/language) OR litigation (exclusive jurisdiction/venue)

- **Governing law**: [Jurisdiction], excluding conflicts-of-law. Exclude CISG if international.
- **Fees**: Each party bears own OR prevailing party recovers
- **Jury waiver**: Include if parties prefer bench trial

### 13. Administrative Provisions

- **Notices**: Written; delivery/courier/certified mail/email; effective on receipt
- **Assignment**: Contractor needs owner consent; owner assigns freely to affiliates/lenders
- **Boilerplate**: Entire agreement, amendments in writing, severability, non-waiver, mutual confidentiality, force majeure (notice + mitigation)

### 14. Execution

Signature blocks: entity name, signature, printed name, title, date. Add notarization/witness if required by governing law.

## Pitfalls

- Confirm pricing structure before drafting commercial terms
- Mark uncertain statutory/regulatory citations with [VERIFY] for the specific jurisdiction
- Scale insurance minimums to project size and risk profile
- LD rates must reflect reasonable pre-estimates of actual damages to be enforceable
- Performance guarantees and test protocols are project-specific — confirm with user before finalizing
- For JV/consortium contractors, explicitly address lead designation and liability allocation
- Flag gaps in provided information — never assume critical business terms
- Verify internal consistency of cross-references, defined terms, and exhibit/schedule references
- For international projects: address currency, CISG exclusion, arbitration seat, language, import/export compliance