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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

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