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:
- Project description — facility type, capacity, throughput specs, location
- Party details — legal names, entity types, jurisdictions, addresses, authorized signatories
- Governing documents — RFPs, term sheets, LOIs, precedent agreements
- Pricing structure — lump-sum, GMP, cost-plus, or hybrid
- Schedule — target milestones, NTP conditions, substantial/final completion dates
- Performance requirements — output capacity, efficiency, emissions, availability guarantees
- Jurisdiction — governing law, regulatory/permitting regime
- 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:
- Negotiation — Senior executives, 30 days
- Mediation — Mutually acceptable mediator, 60 days
- 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
