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Robert A. James
Partner | San Francisco & Houston
+1.415.983.7215
+1.713.276.7689
rob.james@pillsburylaw.com
Engineering, procurement and construction (EPC)
agreements are among the most complex of contracts.
Including their voluminous and imposing attachments,
they often sprawl across several three-ring binders and
cardboard drawing tubes. Reviewing the terms and
conditions is a slog even for experienced personnel,
because the order and depth of coverage of topics vary
among forms and drafters, and because provisions in one
place may be undercut by provisions lurking elsewhere.
This Guide is a compilation and summary of legal
terms and conditions often found in a fixed-price
EPC agreement for a large private industrial work of
improvement—especially a highly detailed agreement
that is subject to project financing or other rigorous
stakeholder review. In addition to these generic
provisions, any given EPC agreement may include
customized clauses addressing distinctive features
of the project’s financing (particularly by export credit
agencies); permitting, regulatory, local law and customer
requirements; integration with direct suppliers to the
owner of specialized equipment and technology; and
coordination with landlord, interconnection, operation,
maintenance and offtake arrangements.
Despite their complexity and variation, EPC agreements
address the following half-dozen categories of topics:
Parties & Definitions
Scope
Time & Money
Completion
Liability
Defaults, Disputes & General
Common EPC clauses are gathered and color-coded here
into those six categories. (Few agreements would have
all such clauses, and many make explicit what would
already be implied.) When reviewing an EPC agreement,
the user can check this Guide and see (i) if the topic
is covered in the agreement under review and (ii) if so,
whether that agreement’s scope description and risk
allocation are appropriate for the project in question.
A Guide to EPC
Agreement Provisions
Second Edition, 2015
“Don’t spend too much time, but let me know if there’s
anything unusual or missing in this.”
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A Guide to EPC Agreement Provisions, Second Edition
0
PREAMBLE & RECITALS
0.1
Owner name and address, identity of members of
owner joint venture if applicable.
0.2
Contractor name and address, identity of members
of contractor joint venture if applicable, and
Contractor’s license number if applicable.
0.3
Recital briefly describing Project.
0.4
Recital briefly describing elements furnished
by Owner or other contractors or vendors (for
example, specialized equipment or technology
furnished directly to Owner by separate
manufacturer). Reference to split contracts where
onshore and offshore work are segregated into
two agreements.
0.5
Recital briefly describing role of Engineer, Architect,
Construction Manager or other entities who,
under separate contract with Owner, manage or
coordinate Contractor’s services.
0.6
Recital of consideration and intent to be legally
bound.
1
DEFINITIONS & INTERPRETATION
1.1
Defined Terms. Key definitions with inherent
business issues include:
1.1.1
“Contract Documents” – usually includes the
documents forming the Owner-Contractor
relation, inclusive of the EPC Agreement
terms; the General, Special or Supplementary
Conditions; the Drawings and Specifications
(after approval by Owner); and Exhibits,
Appendices, Schedules and other Attachments.
1.1.2
“Project Documents” – often, the entirety
of the agreements relating to EPC to which
the Owner is subject, including not only the
Contract Documents but also equipment
supply agreements, land leases, utility
interconnection agreements, pipeline tariffs,
offtake agreements, and other contracts whose
execution may be conditions precedent to the
EPC Agreement notice to proceed.
1.1.3
“Applicable Laws” – usually includes laws,
regulations, and codes. May include permits
and government approvals.
1.1.4
“Requirements” – usually includes Applicable
Laws and the requirements of the Project
Documents applicable to EPC and to
Contractor’s scope.
1.1.5
“Prudent Industry Practice” – usually includes
practices consistent with Requirements that
a prudent EPC contractor for this type of
improvement would observe.
1.1.6
“Changes in Law” – may include, or exclude,
changes relating to means and methods
of construction; changes in tax laws; and
changes in interpretation of existing statutes
or regulations. May be limited to changes with
an impact over $x/occurrence, or (in cross-
border deals) to changes in the laws only of the
country where the work is undertaken.
1.1.7
“Force Majeure” – the typical general force
majeure clause may be supplemented by
construction-specific features. May define
excessive periodic precipitation or other
kinds of qualifying weather events, perhaps
requiring an impact over $x/occurrence or a
number of days in aggregate to qualify. May
address threatened weather events that do
not materialize (e.g., hurricane evacuation) and
other events beyond Contractor’s reasonable
control. May include wars, civil unrest,
terrorism, expropriation and other political
events. May exclude from force majeure
treatment certain occurrences, such as supply
chain interruptions, macroeconomic conditions,
labor disputes, or failures to pay money.
1.1.8
“Subcontractors” – may include subcontractors
of any tier and vendors to onsite subcontractors.
May include or exclude vendors to vendors, or
vendors to offsite subcontractors.
1.1.9
“Affiliates” – may require customized definition,
especially where either Contractor or Owner is
a joint venture.
1.2
Interpretation Standards. “Including” is not
exclusive, and other drafting conventions.
1.3
Priority. May
state that in case of conflict, which of
EPC Agreement terms, General Conditions, and other
Attachments has priority. In case of conflict among
Contract Documents, Contractor may be required to
bring conflicts to Owner’s attention promptly.
2
OWNER, CONTRACTOR &
SUBCONTRACTOR RELATIONS
2.1
Independent Contractor Status. Contractor
a
nd Subcontractors are independent contractors.
Owner may be generally prohibited from
communicating directly with Subcontractors, but
permitted to do so in defined circumstances (in
case of emergencies and liens, with copies of
communications to Contractor; or in case of default,
termination or assignment, without such copies).
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2.2
Contractor Key Personnel and Organization
Chart. Contractor designates Contractor
Representative authorized to receive notices
and take actions required under this agreement.
Contractor not to redeploy key personnel without
Owner consent. Owner may be entitled to require
replacement of unsatisfactory personnel in defined
circumstances.
2.3
Subcontractor Status. Subcontractors are not
third-party beneficiaries of the EPC Agreement.
Contractor is liable for their performance or
nonperformance.
2.4
Subcontractors and Awards. List of previously
approved Subcontractors. Process for advertising
for new subcontracts, review of proposals by
Contractor, review of proposals and Contractor’s
recommendation by Owner, award by Contractor.
Ability of Contractor to award small Subcontracts
without formal process (where there is a fixed
EPC price). Owner may be entitled to require
replacement of unsatisfactory Subcontractor in
defined instances. Contractor may be required to
flow down clauses into Subcontracts, including
financer cooperation duties and execution of
conditional assignments.
2.5
Prior Engineering. Relation of the work under the
EPC Agreement to the “design basis” or “design
package,” or to the work performed under a front-
end engineering design (FEED) agreement or other
existing contracts.
2.6
Review of Documents. Contractor acknowledges
it has reviewed and accepts the scope descriptions
and risk allocations in the Project Documents.
2.7
Review of Conditions. Contractor acknowledges
it has reviewed the site conditions and industry
and economic conditions. Contractor may or may
not be entitled to rely on the Geotechnical Report,
land survey and other materials provided by Owner.
Special provisions for existing piles or foundations
and for subsurface conditions.
2.8
Review of Laws. Contractor acknowledges that it
has reviewed both Applicable Laws and other laws
(e.g., tax laws), that such laws may change, and
that it accepts the risk of such changes, subject to
the Change Order provisions.
3
CONTRACTOR’S RESPONSIBILITIES
3.1
Generally. Contractor performs all Work required
for Mechanical, Substantial and Final Completion
of the Project, all in accordance with Project
Documents, Requirements and Prudent Industry
Practice, so as to meet the Minimum Acceptance
Criteria and pass the Performance Test. Includes
all items or activities reasonably inferable from
Project Documents. Basic Project description
scope document included as Attachment is
illustrative. But Work excludes defined Owner-
furnished items (which may include Owner
Permits, Owner-supplied inputs such as turbine
supply, Geotechnical Report, and site survey).
3.2
Specifically. Contractor provides engineering,
procurement, construction, rectification of
defects, subcontractor award and responsibility,
inspection, Contractor Permits, information needed
or requested for Owner Permits, and training for
operation and maintenance (O&M) personnel or
contractor. May include or exclude responsibility
for receiving, installing and commissioning turbine
or other specialty equipment furnished under
separate contract to Owner.
3.3
Engineering. Contractor conducts all needed
design and engineering (subject to, or not subject
to, “design basis,” “design package” or FEED
agreement outputs), finishes site survey and
geotechnical investigations relying (or not relying)
on Owner’s site survey and Geotechnical Report,
reviews Owner-provided designs, prepares
Drawings and Specifications for Owner review per
timetable schedule (with Owner having x days to
respond, and a defined process for addressing its
comments), proposes value engineering options,
holds all needed engineering registrations and
licenses, uses proper computer-aided design
(CAD) and building information management (BIM)
systems and protocols, and prepares all piping
and instrumentation diagrams (P&IDs) and as-built
drawings.
3.4
Procurement. Contractor conducts all needed
procurement of materials and equipment (subject
to allowances in Contract Price for Owner spare
part decisions, and except Owner-procured items).
Contractor responsible for clearance of customs,
payment of duties and other charges for imports;
responsible for local content and hiring compliance,
and may request relevant information from Owner,
to be provided reasonably and promptly.
3.4.1
Process for proposing and securing Owner’s
approval to substitute “or equal” items for
items specified.
3.4.2
Provisions regarding transportation, delivery,
receipt and storage of materials and equipment.
Responsibility for protection and proper
storage. Shop inspections of offsite fabrication
or manufacturing. Receipt and use of Owner-
furnished items.
3.4.3
Contractor proposes spare parts list. Owner
decides which ones Contractor should
purchase. Adjustment via Change Order to
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spare parts allowance in fixed price. (Or capital
spares may be fixed and included in price, while
operating spares may be extra.) Owner right to
purchase surplus items.
3.5
Construction. Contractor conducts all needed
construction.
3.5.1
Environmental. Contractor proposes, Owner
approves (without thereby assuming liability),
and Contractor implements health, safety and
environment plan (HSE Plan). Plan includes
management and consolidation of waste
materials. Contractor complies with Applicable
Laws for Work and for offsite disposal of
materials. Contractor complies with particular
requirements of regulators (Homeland Security,
FERC, etc.). Contractor notifies Owner of any
releases or claims.
3.5.2
Hazardous Materials (Hazmats). Contractor
not to introduce Hazmats (including explosives)
onsite except as required for Work and in
compliance with Laws. Contractor disposes of
Hazmats in accordance with Applicable Laws.
If Contractor encounters existing Hazmats,
it must notify Owner promptly and avoid
disturbing condition; Agreement may provide
that Owner will then arrange for treatment
or disposal. If Contractor does not so notify,
Contractor bears consequent impacts to its
work and associated liability (sometimes up to
a monetary sub-ceiling).
3.5.3
Minimize Input Loss. Contractor minimizes
loss of gas or other stored materials during
maintenance and startup testing.
3.5.4
Security and Site Rules. Contractor proposes,
Owner approves (without thereby assuming
liability) and Contractor implements plan for
security of and access to jobsite. Particular
requirements of regulators (Homeland Security,
etc.). (Owner security and access obligations, if
project is part of Owner’s larger complex.)
3.5.5
Employment. Contractor responsible that
skilled and qualified personnel are used by
Contractor and Subcontractors. Contractor
will redeploy personnel objected to by Owner
(without Owner thereby assuming liability).
Contractor complies with local hiring, prevailing
wage or other labor law requirements.
Contractor and Subcontractor personnel
are not Owner employees or eligible for
Owner benefits. Contractor is responsible for
immigration and visa requirements. Contractor
to provide labor resources plan with database
of personnel information, subject to privacy
laws. Contractor to implement policies
regarding subjects such as drug tests and use
of cellular telephones.
3.5.6
Labor Relations. Contractor endeavors to
avoid labor relation issues that could impair
performance. Contractor to notify Owner of
relevant events in labor relations. Contractor
to execute and comply with Project Labor
Agreement and require Subcontractors to do so.
3.5.7
Construction Equipment. Contractor provides
needed equipment in new, good and compliant
condition. Contractor liable for damage to
rented equipment.
3.5.8
Coordination and Access. Contractor
coordinates its Work with other contractors
on site and with parties performing
interconnection work. Provisions for scheduled
and unscheduled interruptions at sites,
including turnarounds. Contractor coordinates
work of its team including Subcontractors.
Contractor not to interfere with operations of
Owner on adjacent facilities or with activities of
other contractors. Contractor provides access
to site for Owner, financer and government
personnel, subject to site safety and security
rules. Provisions for shared use of common
facilities such as ports or railroad spurs.
3.5.9
Cleanup. Contractor keeps site clean and
free of surface water and waste—throughout
construction, not just at completion. Owner
may remedy default and backcharge Contractor.
3.5.10
Temporary Items. Contractor provides
permanent or temporary utilities, access
roads, storage, staging and laydown facilities,
and office space (including specified space
and amenities for Owner and Lender
representatives).
3.5.11
Emergencies. Contractor takes action and
provides notices in response to emergencies.
Owner may remedy default and backcharge
Contractor.
3.5.12
Training Program. Contractor may be required
to provide O&M training materials and train
Owner O&M personnel or contractor.
3.5.13
Maintenance of Project. Contractor
responsible for maintenance of Project until
Substantial (or Final) Completion. Any O&M
personnel or contractor during that time report
to Contractor, and Contractor is liable for their
performance, except where they violate a direct
express Contractor instruction.
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3.5.14
Inspections and Testing. Contractor arranges
for inspection and testing of Subcontractors’
work by independent entities. Owner and
Lender rights to make and attend inspections.
Review is not acceptance or waiver.
3.5.15
QA/QC. Contractor to propose, Owner to
review (without thereby assuming liability) and
Contractor to implement quality assurance and
quality control program, meeting ISO 9000
requirements where applicable.
3.6
Administrative. Contractor provides all necessary
administration for Work.
3.6.1
Permits. Contractor obtains Contractor Permits
(defined in Attachment) by specified times.
Contractor provides information to Owner
needed or requested for Owner to obtain
Owner Permits (defined in Attachment) by
specified times.
3.6.2
Payment. Contractor to pay Subcontractors
promptly under the terms of their subcontracts,
and pay Owner promptly for sums due under
this Agreement (often unless reason for
nonpayment is Owner failure to make payment
required under this Agreement).
3.6.3
Meetings and Reports. Contractor convenes
meetings on agreed timetable. Contractor
prepares minutes of meetings, provides
immediate reports of HSE events, emergencies
or Force Majeure occurrences, and provides
monthly progress reports.
3.6.4
Books, Records, Audits. Contractor and
Subcontractors maintain accurate and complete
books and records for specified duration.
Owner, financers and public agencies have
rights of access and audit. Procedures for
objections and adjustments based on audits.
3.6.5
Subordination of Liens. If permitted by
law, Contractor subordinates its lien and stop
notice rights, and requires Subcontractors to
subordinate their lien and stop notice rights, to
the rights of the project financer.
3.6.6
Taxes. Contractor files all needed tax returns
and pays own taxes. Other taxes (such as
sales, use and excise tax and VAT, but excluding
Owner’s income or property tax) are either
included in price or broken down separately.
Contractor is liable for any claims relating to
nonpayment or nonreporting of taxes for which
it is responsible.
3.6.7
Information for Accounting. Contractor
promptly provides information and equipment
lists as required by Owner for tax and financial
accounting, including information needed for
tax exemptions, rebates, abatements and
incentive programs.
3.6.8
No Commercial Activities. Contractor
conducts no activities onsite that are not
needed for Project and is not to store items
needed for other Contractor jobs. Non-
solicitation of Owner personnel (sometimes
bilateral, so Owner cannot solicit Contractor
personnel).
3.6.9
Financer Provisions. Cooperation with
Owner financing. Cooperation with financer’s
Independent Engineer. Provision of legal,
financial and other information. Financer
Acknowledgment and Consent per Attachment
to be signed by Contractor and all major
Subcontractors. If export credit agencies
(ECAs) are involved, the agreement may
require Contractor to verify procurement from
designated countries at specified levels.
4
OWNER’S RESPONSIBILITIES
4.1
Payment and Funding. Owner pays Contractor
the sums provided in this Agreement. Owner
provides evidence of funding at outset, and may
be required to provide periodic confirmations of
funding and notice of intervening adverse changes
in funding.
4.2
Owner Permits. Owner obtains Owner Permits
as described in Attachment by specified times. If
not, Contractor may be eligible for Change Order
(unless failure is related to information Contractor
was to provide).
4.3
Access to Site. Owner furnishes access to
site and access to agreed offsite areas. If not,
Contractor may be eligible for Change Order.
4.4
O&M Personnel or Contractor. Owner furnishes
skilled O&M personnel or contractor for Contractor
training, and for operation following Substantial
Completion. May include Contractor right to
require replacement of unsatisfactory O&M
personnel.
4.5
Taxes. Owner responsible for taxes imposed in
the name of Owner if not included in Contractor
obligations or fixed price. If Owner is pursuing
exemptions, rebates, abatement or incentives,
Contractor furnishes Owner with necessary or
requested information.
4.6
Site Survey and Geotechnical Report. Owner
furnishes described reports. Owner provides other
technical or process data. Contractor may, or may
not, be entitled to rely on these reports and data.
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4.7
Existing Hazmats. Owner responsible for treating
or disposing of existing Hazmats if notified by
Contractor and as and to the extent required by
Applicable Law. Legal requirement may be set as
limit of responsibility, even if further treatment or
disposal would benefit Contractor.
4.8
Owner-Provided Items. Often these include
turbines or modules, utilities, feed gas, diesel,
telecommunications, storage, staging and
laydown areas (either cleared or “as is”), vessels
or railcars for lifting, community communications
or emergency plan, import assistance and
management systems software. Failure to provide
by speficied times may be grounds for Change
Order.
4.9
Owner Representative. Owner designates
representative authorized to receive notices and
take actions under this agreement. Limitations on
representative’s authority, beyond which approval
of Owner management (and financers) may be
required.
5
COMMENCEMENT & SCHEDULE
5.1
Limited Notice to Proceed (LNTP). Provided
limited defined conditions are satisfied, Owner
may issue LNTP and Contractor is thereupon
obligated to commence defined LNTP work.
5.2
Full Notice to Proceed (NTP). Provided full
defined conditions are satisfied (typically including
financing), Owner may issue NTP and Contractor
is thereupon obligated to commence full scope of
work.
5.3
Consequences of Delayed NTP. May be grounds
for Change Order or escalation of costs; ultimately
may be grounds for suspension or termination by
Contractor.
5.4
Schedule Obligation. Contractor performs Work
in accordance with a defined Schedule. May
impose commercially reasonable efforts obligation
to achieve Target Substantial Completion Date;
a covenant to achieve Guaranteed Substantial
Completion Date; and a covenant to achieve Final
Completion within specified number of days after
actual Substantial Completion Date.
5.5
CPM. Contractor to prepare, Owner to review
(without thereby assuming liability) and Contractor
to implement critical-path method (CPM) schedule
with specified features. Contractor notifies Owner
of any delay or change in critical path elements.
Monthly updates, submittals, process for review.
5.6
Recovery Plan. If Work falls behind schedule,
Owner may require and Contractor then must
implement plan for recovering delay at Contractor’s
expense. (subject to applicable Change Order
grounds)
5.7
Acceleration Plan. If Owner desires acceleration,
Owner may request and Contractor then must
propose plan for acceleration at Owner’s expense.
6
PRICE & PAYMENT
6.1
Contract Price. The Contract Price is a fixed
price of $x. (Or Agreement may set a defined
fixed or monthly preconstruction or LNTP scope
compensation, and a process for subsequently
defining the definitive fixed price, to be proposed
by Contractor, reviewed by Owner, and upon
agreement added to the EPC Agreement by
Change Order.) Contract Price is inclusive of all
customs duties and all taxes other than specified
items. Common exclusions from the Contract
Price include taxes payable by Owner measured by
Owner’s net income or by property value of Facility
after Substantial Completion.
6.2
Allowances. Included in the Contract Price may
be allowances or provisional sums for spare
parts, currency, fuel prices, etc. Actual amounts
confirmed and Contract Price adjusted by Change
Order.
6.3
Payment on LNTP. Pre-Mobilization Payment.
Timing of remainder of payment for LNTP scope.
6.4
Payment on NTP. Mobilization Payment.
6.5
Progress Payments.
6.5.1
Monthly Progress Applications for Payment
(AfP). Part (x%) may be based on attached
Schedule of Values of actual work completed
during month. Other part (x%) may be based
on monthly schedule of separately priced
items defined in Attachment, such as General
Conditions items.
6.5.2
Progress AfP Form and Attachments. AfP
form often in Attachment. AfP must be
accompanied by specified invoice, certificates,
unconditional lien waivers for prior period,
conditional lien waivers for current period,
evidence of Owner title for offsite items, and
other documents. Consolidated or separate
invoices for Change Order work.
6.5.3
Owner and Lender Review of Progress AfP.
Timing, right to require further information,
impact of request or response on timing of
payment obligation.
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6.5.4
Retention. Percentage, application to entire
sum or to sum exclusive of fee, grounds
for partial or total release on completion or
exjuration of warranty period. (Or zero or
reduced retention, in consideration of standby
letter of credit or other security.)
6.5.5
Payment. Owner to pay undisputed amounts in
Progress AfP within x days. Late charges.
6.6
Final Payments.
6.6.1
Final AfP. Release of retention, other sums.
6.6.2
Final AfP Form and Attachments. AfP form
in Attachment. AfP must be accompanied by
specified invoice, certification, unconditional
lien waivers for prior period, conditional
lien waivers for current period, and other
documents. Consolidated or separate invoices
for Change Order work.
6.6.3
Owner and Lender Review of Final AfP.
Timing, right to require further information, right
to inspect work, impact of request or response
or inspection on timing of payment obligations.
6.6.4
Payment. Owner to pay undisputed amounts in
Final AfP within x days. Late charges.
6.7
Resolution of Disputed Items. May require
expedited process for resolving disputes over
completion or progress.
6.8
Reconciliation of Accounts and Erroneous
Payments. May include offshore bank account
payment arrangement for foreign-sourced cash flow.
6.9
Liens and Stop Notices. Contractor removes or
bonds against liens and stop notices (often unless
due to Owner’s failure to make payment). Owner
may remedy default and backcharge Contractor.
6.10
Withholding and Setoff. Owner may withhold
sums for specified nonperformance by Contractor
and for sums due. May be bilateral.
6.11
Payment Not Waiver of Rights. Owner still has
rejection and warranty claims, rights regarding
liens, claims and remedies regarding unpaid
claimants.
7
CHANGES
7.1
OwnerInitiated Changes. Owner may direct a
change in the work consistent with the project
scope. Owner may also request Contractor to
study a proposed change and promptly provide
a cost and schedule proposal, often at Owner’s
expense subject to a budget. Owner may direct
that work proceed while parties resolve whether
the directive is a change, or the extent of its cost
and schedule impact.
7.2
Contractor-Initiated Changes. Usually only for
Changes in Law, Force Majeure, acceleration,
other specific provision referencing Change Order
eligibility, delays in getting property insurance
proceeds, Owner suspension of EPC work,
Owner delay or interference with Work, errors
in Geotechnical Report, site survey or other
Owner-furnished items on which this agreement
provides Contractor may rely, existing Hazmats
for which Contractor gave prompt notice, delayed
NTP beyond date stated in EPC Agreement, and
allowance items. Force Majeure sometimes only
affords schedule relief and not cost relief.
7.3
Pricing for Changes. Agreed fixed price, or force
account with unit rates for labor, equipment,
subcontractors with defined margins per
Attachment.
7.4
Review and Approval of Changes, Disputes.
Timing, process.
7.5
Price Adjustment for Change Order. Reference
to Attachments regarding unit costs, Contractor
fee, General Conditions item costs, and defined
markups on subcontracts.
7.6
Time Adjustment for Change Order. Provisions
regarding CPM analysis, “ownership” of float.
7.7
Funding. Change Order Work conditioned on
evidence of additional Owner funding.
7.8
Adjustments Only by Change Order. Change
Order is accord and satisfaction. No further
compensation for ripples or impacts.
7.9
Mitigation. Contractor endeavors to mitigate
impact of Force Majeure or other events leading to
Change Order.
8
COMPLETION & ACCEPTANCE
8.1
Substantial Completion. Usually requires that
Work meets Mechanical Completion or other
Minimum Acceptance Criteria; Performance Test
has been run and either (i) Performance Standards
are met or (ii) Contractor pays Performance
Liquidated Damages; all Work is completed
except agreed Punchlist; Contractor provides
certificate of completion; all Contractor Permits
are obtained and in effect; and all ordered Spare
Parts and required manuals, warranties and other
documents are delivered to Owner or Owner’s
O&M contractor.
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8.2
Contractor Notice of Substantial Completion.
Notice to Owner. May require notice to agency
(e.g., FERC for feed gas, production of LNG, other
activities).
8.3
Verification of Milestone Criteria and Minimum
Acceptance Criteria. Process for inspection and
requests for information.
8.4
Performance Test. Procedures. Provision of
inputs. Conduct of test. Metrics (output, efficiency,
emissions, etc.) measured per Attachment. If
test failed, Contractor may within x days perform
work and notify and re-run performance test. If
Contractor declines to do so or if Performance Test
again not met, Contractor pays liquidated damages
per Attachment.
8.5
Operation by Contractor prior to Substantial
Completion, including during Performance
Tests. Owner responsible for operation following
Substantial Completion. Owner right to accept a
portion of the facilities and assume liability related
thereto.
8.6
Punchlist Items and Final Completion.
Contractor not to interfere with Owner operations.
Reduction in retention to a defined multiple (e.g.,
150% or 200%) of estimated punchlist and defect
correction costs. Owner review of punchlist
completion, issuance of Final Acceptance.
Acceptance not waiver of rights.
9
WARRANTY
9.1
Warranties. In addition to Minimum Acceptance
Criteria and Performance Test, Contractor
warrants Work free of defects and violations of
Requirements for Warranty Duration (often earlier
of (i) x months after Substantial Completion, or (ii)
x months after delivery and installation of particular
equipment). Standard of professional care for
design and engineering services.
9.2
Correction Before Completion. Owner rights
of correction prior to Substantial Completion.
Contractor obligation to correct. Owner may
remedy default and backcharge.
9.3
Correction After Completion. Owner rights of
correction after Substantial Completion. Contractor
may have obligation to correct, or the right to
correct if it would not interfere with operation.
Owner right to remedy and backcharge. Repeated
or systemic defects of a part may not require
actual failures of all such parts for Contractor to be
obligated to replace them.
9.4
Extended Warranty. For replacement parts or
warranty Work. Handling of statutes of repose.
9.5
Assignment. Contractor warranty assignable
by Owner to other Project owners and financers.
Contractor obtains warranties from Subcontractors
and assigns the warranty rights to Owner.
9.6
Disclaimer. Conspicuous disclaimer of implied
warranties.
10
LIQUIDATED DAMAGES
10.1
Milestone Liquidated Damages. Milestone
Mechanical Completion Delay Liquidated Damages
(and bonuses, in each case where applicable).
Often this and the subsequent LD provisions are
specified in Attachments.
10.2
Substantial Completion Liquidated Damages.
10.3
Final Completion Delay Liquidated Damages.
10.4
Performance Test Liquidated Damages.
10.5
Payment of or Withholding for Liquidated
Damages.
10.6
Not Penalty. Liquidated damages are not a
penalty; liquidated damages are exclusive of other
remedies for delay or performance test non-
attainment. Potential bonuses for early completion
or for surpassing certain performance standards.
11
LIMITATIONS OF LIABILITY
11.1
Limitations. Contractor’s liability under agreement
may, or may not be, be limited to (i) $X for Delay
LDs, (ii) $X for Performance Test LDs, and (iii)
$X for other obligations of Contractor under the
Agreement—except indemnities, gross negligence
or willful misconduct, failure to complete Work, or
other exclusions.
11.2
Waiver of Consequential Damages. May exclude
such remedies, except as covered in indemnities
and except as compensated in liquidated damages.
Waiver may be unilateral by Contractor only, or
bilateral.
11.3
Exclusivity. Exclusivity of remedies, waiver of
implied remedies.
11.4
Scope of Liability. Liability allocations apply even
in the event of negligence of the benefitted party.
11.5
Survival of Liabilities. Liabilities survive for the
time periods specified in the agreement.
by Robert A. James
www.pillsburylaw.com | 9
12
TITLE & RISK OF LOSS
12.1
Title. Co
ntractor warrants that Owner receives
title to the Facility and
all supplies, equipment and
spare parts free of encumbrances. Title may pass
on payment for item; or on delivery of item to site;
or on earlier, or later, of payment and delivery. If title
passes o
ffsite, Contractor is to safeguard Owner’s
title and to provide evidence of protections (UCC-1
Statements, e.g.).
12.2
Risk of Loss. If Contractor is to procure project
property insurance, Contractor bears risk of loss
of or damage to all of the Facility and all materials
and equipment prior to Substantial Completion,
except (i) certain “Special Risks” items excluded
from an all-risk policy like war, nuclear and
“Windstorm Damage” over $x, (ii) Change Order
relief for these exceptions, and (iii) Change Order
relief for Owner actions or Force Majeure per EPC
Agreement. Owner bears risk of loss of or damage
to the Facility following Substantial Completion,
subject to Contractor’s warranties and Contractor’s
negligence in Final Completion and performance
of warranty work. (An alternative allocation is
that some or all of the risk of loss to the project
is retained by Owner, if Owner insures the risk
or uses its self-administered claims program.
In this case, Contractor usually bears some
deductible exposure and risk of loss to tools and
consumables.)
12.3
Found Materials. If Contractor produces soil,
aggregates, minerals or treasure, they belong to
Owner but Contractor may incorporate found soil
and aggregates in the Work on the site.
13
INSURANCE & SECURITY
13.1
Contractor and Owner Insurance Program. In
accordance with detailed Attachment. Specifies
types of policies, credit rating of issuers,
endorsements, and minimum limits.
[Simplified examples:
13.1.1
EXAMPLE 1. Contractor procures Workers’
Compensation (WC), Employer Liability (EL),
Commercial General Liability (CGL), Auto,
Aviation, Marine, Umbrella, Builder’s All Risk
(BAR), Delayed Startup BAR endorsement.
13.1.2
EXAMPLE 2. Contractor procures the foregoing
liability insurance but Owner procures the
Builder’s All Risk Coverage.
13.1.3
EXAMPLE 3. Owner procures project Owner-
Controlled Insurance Program, while Contractor
provides CGL, Auto for offsite work.
13.2
Insurance Requirements. Maximum deductibles,
named and additional insureds, waiver of
subrogation, prohibition or notice of cancellation,
certificates, what happens if insurance changes or
is unavailable.
13.3
Owner Security. O
wner obligation to provide parent
guaranty or parent guaranties. (Or standby letter of
credit, bank guarantee, or other collateral.) Process
for replacing or adjusting such security. Periodic
financial reports, obligation to provide requested
information as to guarantor’s or bank’s condition.
13.4
Contractor Security. Contractor obligation to
provide suerty bonds, parent guaranty or parent
guaranties. (Alternatively or in addition, obligation
to provide standby letter of credit, bank guarantee,
or other collateral.) Process for replacing or
adjusting such security. Periodic financial reports,
obligation to provide requested information as to
guarantor’s or bank’s condition.
14
RELEASES & INDEMNITIES
14.1
General Indemnity. EPC agreements vary widely
in their risk allocations, based largely on the ability
and willingness of the owner and its credit sources
to efficiently bear, transfer or distribute risks
that occur in the engineering, procurement and
construction process.
14.1.1
EXAMPLE:
14.1.1.1
Contractor indemnifies Owner for injuries and
property damage to third parties (being those
other than Contractor, Subcontractors, Owner
or their employees) arising from Contractor’s
negligence; for damage to Owner’s existing
property or the Work after Substantial
Completion arising from Contractor’s
negligence up to $x/occurrence (or proceeds of
insurance, if less); or Contractor law violations,
Contractor IP infringement, Contractor Hazmat
releases, failure to pay Contractor taxes, or
failure to pay Subcontractors regardless of
negligence.
14.1.1.2
(a
) So-called “knock for knock” indemnity.
(b)Contractor indemnifies Owner for injuries and
property damage to Contractor, Subcontractor and
their employees (Contractor Group), and Owner
indemnifies Contractor for injuries and property
damage to Owner and its employees (Owner
Group), in each case without regard to fault.
10 | Pillsbury Winthrop Shaw Pittman LLP
A Guide to EPC Agreement Provisions, Second Edition
14.1.1.3
If Owner is to procure project property
insurance, Owner indemnifies Contractor for
damage to existing property or the Work after
Substantial Completion over $x/occurrence (or
proceeds of insurance, if less), and for Owner
IP infringement.
14.1.1.4
Owner indemnifies Contractor for Owner law
violations and for landowner claims (subject to
Contractor’s indemnities of Owner).
14.2
Indemnification Procedures. Right to appoint
counsel, right to approve settlement or arbitration.
14.3
IP Indemnities. In case of IP indemnities,
obligation of indemnitor to seek settlement or
lifting of injunction, obligation to furnish non-
infringing alternative.
14.4
Indemnification against Liens and Stop Notices.
Contractor obligation to bond against or remove
liens and stop notices. Owner may remedy default
and backcharge.
14.5
Scope of Indemnities. Indemnities apply
regardless of sole or concurrent negligence, to full
extent permitted by applicable statutes.
15
OWNERSHIP & CONFIDENTIALITY
OF INFORMATION
15.1
Ownership of Work Product. Either by Contractor
subject to Owner license for the Project, or by
Owner subject to broader Contractor license.
In either case rights of licensee are fully paid.
Owner’s rights assignable to purchaser of facility.
15.2
Transfer of Work Product. Contractor and
subcontractors obligated to provide assignment or
license of technology, and deliver tangible forms
of such technology. Building information modeling
provisions.
15.3
Contractor Confidentiality. Definition of Owner
confidential information, obligation, duration.
15.4
Owner Confidentiality. Definition of Contractor
confidential information, obligation, duration.
15.5
Exceptions. Disclosures to financer, potential
purchasers. Rights if court or agency requires
disclosure.
15.6
Duration. Indefinite, or expiring on completion of
after x years.
16
REPRESENTATIONS
16.1
Contractor Representations. Corporate matters,
solvency, rights in intellectual property.
16.2
Owner Representations. Corporate matters,
solvency.
17
DEFAULT, SUSPENSION
& TERMINATION
17.1
Owner Rights on Contractor Default. Definition
of Contractor Default. Owner may remedy
defaults and backcharge, or may suspend, or may
terminate. Special rules for insolvency event. If
work terminated, Owner takes possession and
receives assignment of subcontractors; Contractor
pays Owner the difference in completion cost;
Contractor discontinues work and turns over all of
Owner’s materials and equipment and information
to Owner or its contractor. Specified additional
remedies for Contractor Default.
17.2
Owner’s Right to Terminate for Convenience.
Owner may be entitled to terminate contract for
convenience. If so, Owner takes possession and
receives assignment of subcontractors; Contractor
discontinues work and turns over all materials
and equipment and information to Owner; but
Owner pays for all work performed to date, costs
in demobilizing and shutting down operations, and
in some cases some compensation relating to the
unperformed work.
17.3
Owner’s Right to Suspend Work for
Convenience. Entitlement of Contractor to
Change Order. Contractor right to suspend after
extended period.
17.4
Contractor’s Right to Suspend for Owner
Default. Definition of Owner Default. Entitlement
of Contractor to Change Order.
17.5
Contractor’s Right to Terminate for Owner
Default. Specified remedies for Owner Default.
17.6
Rights to Terminate for Extended Force Majeure.
May be unilateral or bilateral.
17.7
Rights to Terminate for Delayed NTP. Contractor
right after extended period. Owner may or may
not be able to prevent Contractor termination by
paying standby costs.
17.8
No Other Suspension or Termination Rights.
by Robert A. James
www.pillsburylaw.com | 11
18
DISPUTE RESOLUTION
18.1
Negotiations. Discussion by higher-level
executives of parties.
18.2
Mediation. Ad hoc or institutional, definition
of rules. Specified time period before or during
binding resolution process.
18.3
Binding Dispute Resolution and Consent to
Joinder. Arbitration may be ad hoc or institutional,
pursuant to selected rules. Specified time
period. Rules, location, number, nationality and
independence or partiality of arbitrators, selection,
discovery, award requirements, injunctive
relief pending award, enforcement of award.
Alternatively, judicial resolution in exclusive form,
dispute review board (DRB) or expert resolution.
18.4
Continuation of Performance. Parties continue to
perform agreement during resolution. Sometimes
an escrow is established for disputed sums in
certain large disputes.
19
GENERAL PROVISIONS
19.1
Entire Agreement.
19.2
Attachments.
19.3
Amendments.
19.4
Joint Drafting.
19.5
Coordination with Other Project Documents.
19.6
Controlling Language.
19.7
Counterparts.
19.8
Headings.
19.9
Limited Effect of Waivers.
19.10
Notices.
19.11
Announcements.
19.12
Severability.
19.13
Successors and Assigns.
19.14
Assignment.
Pre-approved assignment by Owner
to affiliates, financers, or purchasers of interests, but
usually no pre-approved assignment by Contractor.
19.15
No Third-Party Beneficiaries.
19.16
Governing Law.
19.17
Agency Requirements. FERC, PUC or other
agency-specific requirements.
19.18
Compliance. FCPA and unauthorized payments
clauses, technology export compliance clauses.
19.19
Joint and Several Liability. Especially for Owner
or Contractor joint venture parties.
19.20
No Partnership or Fiduciary Status.
19.21
Further Assurances.
19.22
Survival of Provisions.
ATTORNEY ADVERTISING. Results depend on a number of factors unique to
each matter. Prior results do not guarantee a similar outcome.
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