【Haichuan EPC】Understand the several “key clauses” in an EPC contract

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What is the biggest fear in EPC project contracting? The work was done, and when the accounts were settled, there was a loss. Disputes continued, the project timeline was delayed, and eventually a lawsuit was filed against the client. EPC may seem like an easy target, but it’s full of traps once you try to take advantage of it. Why? Because its rules of play are completely different from those of traditional construction general contracting. The \"soul\" of an EPC contract: By focusing on these key points, you grasp its essence. When signing an EPC contract, don’t rush to look at the price first. First, understand these key “core provisions”: 1. “Owner’s requirements” – the “constitution” of the project. This is the fundamental law governing the entire project. What the owner wants, what the standards are, and what the functions should be – it’s all included here. Problem: Vague requirements are demanded, such as “reaching industry-leading standards”. By then, if the owner says you haven’t met the standards, who can you turn to for recourse? Avoid pitfalls: Quantify and specify all requirements. Don’t be afraid of the hassle; clarify things upfront to avoid bigger problems later. 2. Pricing model — Fixed price is the mainstream; EPC projects usually adopt a fixed price. In other words, that’s the price; by doing a good job, what you save is your profit. Problem: What to do when material prices soar? What to do when encountering unknown geological conditions? Avoid pitfalls: The contract must specify the circumstances under which prices can be adjusted. Generally, only these 5 situations allow for price adjustments: · An increase in material/labor costs exceeding the agreed limit ； · **Policies and regulations have changed ； · Encountering unforeseen adverse geology ； · The owner proposed the change themselves ； · Force majeure has occurred. 3. Risk sharing – whoever creates the risk must take care of it. Generally, the owners bear those 5 types of risks. For other risks, you basically have to bear them on your own. Avoid pitfalls: When submitting a bid, be sure to include the risks you will bear in the costs. Don’t blindly lower prices just to win a bid; otherwise, when risks arise, you’ll suffer huge losses. 4. Qualification issues – “Dual qualifications” are the trend; **companies are now encouraged to have both design and construction qualifications. If not, a consortium can be formed with qualified entities. Problem: The consortium agreement wasn’t properly drafted, resulting in unclear roles, responsibilities, and rights; internal conflicts arose first. Avoid pitfalls: The consortium agreement must clearly state in writing who will take the lead, how the work will be carried out, how the costs will be divided, and who will be responsible in case of problems. (Remember, the parties in the consortium are jointly and severally liable to the owner; if one party fails to perform properly, everyone is responsible for making up the loss.) ）