Conceiving and Drafting the Terms of EPC Contracts

Articles

Conceiving and Drafting the Terms of EPC ContractsR. V. Seckar, FCS, ICSA (UK), Company Secretary, Chandra Group of Companies,Kakinada.

Engineering, Procurement and Construction Contract, commonly known as EPCcontract are common in the construction of large power plants, infrastructure projectsand the like. While emphasising the care and caution to be taken while drafting theterm of such a contract, this article discusses elaborately the various other points to beconsidered in such an exercise.

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INTRODUCTION

The term EPC means Engineering, Procurement andConstruction contract. An EPC Contractor is engaged in theconstruction of large power plants, large industrial plants, giantindustrial infrastructure, power transmission and distribution,railways and in oil and gas industry. Some of the famous EPCcontractors are ABB, L&T, Uhde India, Tata Projects Ltd,IRCON International Ltd, etc. Under an EPC contract, thecontractor offers all the engineering, procurement andconstruction activities. In an EPC contract, the contractor willbe held responsible for any defect in the construction, design orperformance of the works. Moreover, in an EPC contract, boththe design and construction are placed on the contractor alongwith a harsh standard of performance. Hence, the personnelengaged in drafting of EPC contract have to pay special attentionto the allocation of project risks and with specific reference tothe drafting of common terms in EPC contracts. Else, thecontractors interest will be affected, and he may have to incurpecuniary losses and implementation of the project may bedelayed. This article analyses the points to be taken intoconsideration while drafting the terms of international EPCcontract and allocation of risks in the EPC contract so thatinterests of both the contracting parties are secured.In drafting the EPC contracts, legal practitioners may usestandard form contracts as a basis for their contract document.These template or boiler contracts offer a familiar startingpoint 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 indesign and construction of projects thereby employing the sameto the engineering,procurement and construction contract or

turnkey contracting basis. Under this contract, the FIDICConditions of Turnkey or EPC Projects (famously known asthe silver book) is designed to handle scenarios where bids areinvited on an international basis. It has been specificallydesigned for use in EPC and BOT contracts. However, lawfirms and big contractors will have their own in-house standardEPC contract and for these parties, silver book may act as asolid reference to update and review their in-house standardforms. For those law firms and contractors, who do not havestandard EPC, contract forms may use the Silver Book fordrafting their EPC contract terms. (Huse 2002:48).However, there are obvious tensions between a project companyand a contractor where a turnkey EPC contract is used. Thedrafters of EPC contract has to pay special attention to theallocation of project risks and with specific reference to thedrafting of common terms in EPC contracts. Else, thecontractors interest will be affected, and he may have to incurpecuniary losses.

ANALYSIS

An EPC Contract is also known as the fast-track contract. Itcombines three stages of construction contract under the ambitof one contract. It combines the construction, procurementand engineering aspects into one single contract. It facilitatesthe growth on a project to proceed on an overlapping basisthan if the three stages have been taken over in series.The package deal or turnkey arrangement or design orbuild , cle-en-main or EPC imposes the duty to constructand design solely on the contractor. There is no standardexplanation for each of these terms in the construction sector.The phrase turnkey connotes the most extreme structure ofplacing the design and construction obligation on the

Articlescontractor, such that after completion, the employer will begiven the key to project to start the operation of the constructedproject.There are potential complex contractual structures in any BOT(Build, Operate and Transfer) contract. In majority cases, theBOT projects will employ either an EPC or a turnkey contractfor the actual construction and design aspect of the contract.Hence, a BOT is not a separate style of construction contractingbut rather a technique of financing the project. In case ofBOT contract, the lenders will have considerable sway on thecondition of the underlying construction contract includingthe prerequisites that such a contract be on a turnkey basis orin the guise of an EPC contract.In BOT contract, the operation period between finishing andtransfer also offers the transferee a chance to authenticate thequantity and quality of the productivity of the completedproject work. Accordingly, in a BOT contract, a contractormay be obliged to give training of the transferees employeesbefore the actual transfer of the project is completed therebyeasing any possible tension that may arise in the contract.The contract provision should be drafted by taking intoconsideration the accelerated deterioration of the work at thetime of transfer of the project. Thus, a transferee will berequired to pay attention to maintain the operators incentiveto maintain the workflow properly and to circumvent anydeterioration in the final phase of the contract just before thetransfer to the transferee. The operator may in an effort tosave on costs and at the terminal phase of the operating period,the contractor may indulge in a slowdown in the maintenanceand operating expenditures resulting in accelerated worseningof the work scenario. Thus, contract provision in some BOTcontract is drafted in such a manner by placing theresponsibility on the operator to assume liability for defectsfor a shorter period subsequent to the transfer.

VARIOUS TYPES OF CONSTRUCTIONCONTRACTS

Procurement Contract

It provides for the methodical sourcing of work and suppliesfor a project. This contract includes stipulations that demandthe 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

of supplies, materials, equipments and machinery to theproject site.

To organise financial functions such as reviewing ofinvoices, forecasting the cash needs and overseeing ofaccounting records.

In a majority of contracts, often no separate procurementcontract is employed especially in project financing and forthe obvious reasons, a separate engineering contract is notemployed. Instead, the turnkey construction contract is madeto include all procurement work until the financial closure issuccessfully completed. (Hoffman 2008:170).

Construction Contract

This contract oversees the complete construction activities ofthe project. Thus, in a construction contract, the contractorundertakes to offer all constructions associated servicesincluding organisation of labour, supervision of theconstruction, management of tools, supplies, constructionfacilities, field engineering and site investigation. (Hoffman2008:170).

EPC Contract

In an EPC contract, the contract structure will be muchcomplicated as many participants are involved in theimplementation of the project. Thus, either an EPC or a BOTcontract often is not as simple as its definition connotes. Theremay be large number of parties involved under complexcontract structure. For instance, in a hydroelectric project, theconcerned government has granted a concession to the projectdevelopment company. This project development companyhas in turn entered into separate contracts for the constructionof the facility, its operation and maintenance during suchconcession phase and power purchase agreement (PPA) withan electrical supply utility. A consortium of contractors wasassigned with the turnkey contract for the construction of thefacility. Again, each of the turnkey contractors was also anequity stakeholder of the EPC contracting company as theywill have to subscribe some portion of the equity of the projectdevelopment company. Further, one of the subsidiaries of theturnkey contractor was assigned the operation of the facilityafter the completion of the project. Thus, in an EPC or a BOTproject the contract has to be drafted by taking into accountthis complex structure involved in a typical power plantconstruction contract. Where a project is undertaken by a Stateor by a political entity, the EPC contractor assumes furtherrisks in that project as the project may be affected in future. Asuccessor government gaining power, whether it be federal,State or local may try to dishonour some part or whole part of

Conceiving and Drafting the Terms of EPC Contracts

Articlesproject contract entered into by the predecessor government.A best illustration of this type of action by a successorgovernment to modify or change an EPC contract enteredinto by an earlier government is the Enron-Dabhol powerproject in India. In such cases, it is wise to incorporatetermination payments and termination provisions in an EPCcontract in favour of Project Company. If the governmentfailed to honour its legal commitments, then these damagepayments will have to be made by the defaulting governmentto the project company. It is sound to add a so-called statementof binding impact to other agreements or an implementationwith the host nation. (Hoffman 2008:158).Further it is prudent to add a waiver of sovereign immunityclause in the EPC contract if it is entered with a host nationsgovernment or with an entity owned by a host nation. Forinstance, in Texaco Overseas Oil Petroleum Co / CaliforniaAsiatic Oil Co v. Libyan Arab Republic1, it was held that thegovernment cannot employ its sovereignty to ignore obligationsand cannot cancel the privileges of the contracting party whohas executed its multiple duties under the contract through aninternal order of the government. (Hoffman 2008:158). Incase of sovereign immunity, a government may waive suchimmunity either through explicit or implicit actions. In MorganGuaranty Trust Co v. Republic of Palau, the Republicssovereign immunity was waived by the President of theRepublic while entering into loan agreements with companiesof U.S.A origin in respect of construction of power plants.Later, the financing company sued the Republic when it failedto make payment under a guarantee and defaulted on itspayment obligations. It was held by the court that Republicwas under obligation to reimburse the guarantors. Accordingto court, the President of the Republic by signing the agreementand by supporting the financing with the full faith and creditof the Republic has the obligation to honour the commitmentsmade already. (Hoffman 2008:159).In Saudi Arabia v. Arabian Oil Co (Armco)2 , it was held byan International Arbitration tribunal that laws of Saudi Arabiahad to be supplemented or construed by the general principlesof law, by the practice and customs and usage in the oil businessand by thoughts of untainted jurisprudence and the defendantsrights could not be protected in an authentic style by thelegislation in force in Saudi Arabia.In Mobil Oil Iran Inc v. Islamic Republic of Iran3 , as regardsthe applicable law in a contract, the Iran-United States ClaimsTribunal has often corroborated its stand on applicability of1. 21 I.L.M 726,735-36. (1982).

2. 27 ILR 117 ,168 (1963).

3. US CI Trib Rep 3, 64-65 (1987)


law by having recourse to its own international nature. Anissue of confiscation will always look at in the background ofapplicable international law only irrespective of the fact ofthe law preferred by the parties.Financial institutions and banks will make a further stipulationwhile granting finance to the project as to offer them somecertainty as to their financial risk. Thus, lenders may be placedwith a significant amount of certainty if lump-sum bidding orif much risk is placed on the contractor for completion of theproject.EPC CONTRACT (OLD EXAMPLE)

Project Company

Engineering Fabrication EPC ContractorContractor Contractor

EquipmentVendor

EPC CONTRACT (NEW EXAMPLE)

ProjectCompany

MainContractor

EPC

EngineeringContractor

System Vendor Facrication EPC ContractorContractor

EquipmentVendor

Source: (Wilpert & Fahlbruch 2002:214)

EPC, TURNKEY AND DESIGN BID CONTRACT

Dissimilarities exists between these contracts. Under an EPCcontract, the contractor offers all the engineering, procurement

Articlesand construction. In a design-bid contract, the employer offersthe design, which often includes the description of materialsto be used and other major construction parameters. Under aturnkey contract, it is the obligation of the contractor to supplythe final design of the project.Thus, under EPC contract, the contractor will be heldresponsible for any defect in the construction, design orperformance of the works. The employer has to demonstrateto what degree resultant damage was caused by defectivedesign or by the faulty construction under a design-bid buildcontract. (Huse 2002: ix).Under EPC contract, both the design and construction areplaced on the contractor along with a harsh standard ofperformance. The standard of performance applicable willbe contained in the contract or in the non-existence of anyexplicit provision, by the applicable law. Under the SilverBook, the standard is fitness for purpose. As laid down inEnglish case law namely IBA v. EMI and BICC4 , a turnkeycontractor is under strict liability to deliver the work fit forthe 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 awardof the contract and the negotiation. Such phased bidding willhelp the employer to first evaluate the quality of the design atfirst and then only the bid price.The fitness for purpose standard can be explained a stricterstandard than a professional duty of care as it places onerouson the contractor for any defect or failure of design to performto the standards needed.

DRAFTING OF EPC CONTRACTS

While drafting EPC contacts one should give importance tothe following aspects:

The Scope and Definition of the Works

The scope of work has to be clearly drafted and requirementof an employer should be drafted precisely to define theliability of the contractor for design, construction andperformance.

Increase in the price

The real issue for suppliers and EPC contractors working inthe current unpredictable materials price inflation scenario suchas cement, steel etc. is that forecasting, quoting and executing

chief construction contracts becomes a confront and manycontractors incur major pecuniary losses or attrition of expectedincomes since the most of the construction contractors arebound by predetermined-priced EPC contracts where they haveto accept the risk of increases in both supplier and materialcosts.

Devoid of a distinctly worded price appreciation provisionthat permits for a modification to the price of the contract dueto the occurrence of an unforeseen event or, an unforeseenincrease in the whole-sale prices of major construction relatedmaterials, a contractor may have to bear the unbearablepecuniary loss. Further, an EPC contractor may not get a reliefas, even if the contract has turned to be onerous, which willnot normally be adequate legal stances for execution of thecontract 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 increasedue to the occurrence of some modifications or events, it iswise to add a price increase clause in the EPC contract tosafeguard the interest of the contractor against price volatilityin the near future. For instance, the courts in U.S.A hold partiesresponsible for their contractual agreements. For instance, inIowa Electric Light and Power Co v. Atlas Corp5 , the courtordered that the uranium supplier had to honour his contractualobligation to supply the uranium to the utility though the priceof the Uranium to the supplier had increased considerablylater. This case stresses the significance to include priceescalation clause in an EPC contract to safeguard againstthe incurring of financial loss due to price escalation in thelater date. Further, in an EPC contract, contractual provisionscan be included in the contract to pardon performance uponthe happening of discussed events like price increases. InEastern Airlines v. McDonnell Douglas Corp, the court heldthat the doctrine of force majeure clause will not be applicablewhere a future event was particularly mentioned in thecontract. (Hoffman 2008:192).Since the contractor assumes overall control over the project,the employer may desire to restrict the capacity of the contractorto obtain such increases. Generally, courts will insist that acontractor must carry out the construction work at the rate agreedespecially in predetermined-priced EPC contracts, which assignrisk and, which do not contain a precise clause permitting formodification in prices. In the present economic scenario, EPCcontracts tender prices are towering and service providers insistthat if the project owners are ready to share more risk, thenthey will get more competitive bids. For instance, EPC contractawarded by Dubai municipality are footed on FIDIC contract

4. (1980) , 14 BLR 1 5. 445 U.S 911 ( 1980)


Articlesstipulations but so far, do not mirror the suggestion by FIDICthat terms for modifications in bids for variations in cost shouldbe introduced where it might be unjust for a service provider toassume the whole of the risk of increasing costs associated withinflation. From the perspective of a project owner, the notionof conveyancing a price-increase provision in a contract mayappear like issuing a blank cheque, albeit he might get profitout of it. If the contract is allowing the contractor to charge hisrate on current prices and any real enhancement, rather than astandard-price quotation with tentative eventualities, in suchcases, the project owners might save some handsome moneyand may avoid any unwanted delay and overrun in the timelyconstruction of the project.In any EPC contract, the terms should have a price-escalationprovision which should recognise the exact materials regardedto be unstable and the prices per unit for such project materialsis to be charged at rates which prevailed at the time when thecontract is completed. Normally, these provisions shouldillustrate unambiguously that the project owner will beresponsible for any increase in price in those basic constructionmaterials like cement, steel and the total price of contract to beaugmented by a settled percentage to offset the loss due to priceescalation. A rational provision will lay out periods of noticefor recognition of price augmentation and to shun disagreementsat later dates, to audit and verify the category of documentationdemonstrating the price increase, the incident that activated sucha boost in price of contract, what is the proper assessment of themarket price, what are the time periods covered and how frequentthe 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 riskpertaining to design supplied by the employer between theparties by way of specific provision.

Employer Risks

An EPC contract has to specify the risks associated with theemployer.

Performance Guarantee

There should be provision in the EPC contract for theperformance guarantee by the contractor by way of providingbank guarantee or other guarantee or by way of retentionmoney.

Completion

An EPC contract should contain a provision regarding theextent and nature of completion needed before the employertakes over the works. It is to be ascertained whether any

performance tests are to be made before or after suchcompletion. Thus, under the customary design-bid-buildcontract, the designer and construction contractor will be heldliable for varied yardsticks of performance for the completionof the works. It is to be noted that designers in many countriesare not needed to undertake for results, but rather method. Itis expected from them that they have higher supremeknowledge on the subject, competent enough and can finishthe design with a rational magnitude of technical skill. Forinstance in Surf Realty Corp v. Standing6 , the U.S court heldthat the designer, while preparing the drawings and design,should exercise his ability and skill, taste and judgementrationally and without neglect. Thus, this principle needs aprofessional duty of care. (Huse 2002: 18).

Liability for Defects

An EPC contract should include a provision as to decide theperiod of time up to which the contractor will be heldresponsible for rectifying any defect that may occur in theworks.

Consortium or a Joint Venture

Where a contractor uses a consortium or a joint venture forthe project, a specific provision will need to be included thatit is essential to elect a representative among consortium withadequate decision-taking authority to facilitate interaction withthe employer.

Other matters

Provisions relating to contractors 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 thefollowing manner. The project company will assume themarket risk and in a power project, the power purchaser willaccept the risk to a limited extent. The EPC contractor willassume the design, construction and commissioning risks. Therisks arising out of operation and maintenance will be borneby the O& M contractor. The overall political risk likerebellion, war and delays by authorities will be borne by therespective government, mainly through concession agreement.It is recommended that the respective government shouldaccept these political risks as they are the sole party who couldeither influence or control it and can lessen its impacts.Provisions concerned with risk allocation have to be drafted sothat it would reflect the language of the agreement and other6. 78 S.E .2d 901 at 907 (1953)


Articlesconcession. Further, it has to take into account the considerationslike identical language for extension of time and force majeureevents. Such back-to-back language minimises the extent ofgaps and vagueness between various agreements.A dispute resolution clause in the EPC contract will not onlysave time but also cost and helps to find a fast solution to anyissue between the parties. (Huse 2002: 48).There are four fundamental risk-of-loss methodologies thatan owner can impose in his EPC contract.

(a) Demand the EPC contractor to wholly responsible andto totally indemnify the owner, all for all, possible losses.

(b) Discharge the EPC contractor from indemnity andresponsibility and to fully reimburse or indemnify theowner for all damages or losses.

(c) Impose an overall ceiling limit on the EPC contractorsresponsibility and indemnify for selected or for all losses.

(d) Adjust or modify one or more of the approachesmentioned in tune with the owners predestined riskmanagement 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 thecontract in a professional style. However, imposingof unreasonable or excessive risk will hinderinnovation and maybe yield negative results.

2. Risk allocation should be footed on the profit orreturn that the party espousing risks that mayactually have anticipated from its participation inthe project.

3. The extent of control over the risk to be distributedmust be taken into account in establishing a suitableallocation of responsibility.

4. It should be seen that the party is having the abilityto cover the risk through insurance or by othermethods, which are a crucial element in riskallocation. ( Bramble and West 1999 :101)

5. Full indemnity and responsibility are obtained fromEPC contractors by owners for all equipments andtools either owned or rented by the contractor usedin the project site.

6. For all equipments and tools supplied or loaned bythe owner to the contractor, full responsibility isplaced on the EPC contractor for use in carryingout the work and many owners contractly negatesuch representation or fitness for such an equipmentand tool.

7. In some scenarios, the owner and the contractormay agree to share losses and responsibilities equallyor jointly. Here, only to the degree of aproportionate share of negligence, each party wouldagree to indemnify each other. Thus, by agreementor through a court or through a commercialarbitration, each partys liability will be determinedin case of loss due to negligence.

In the case of EPC hydro contracts, contractors are alwaysreluctant to forward their bid unless they are short listed in aprequalification bid due to expenses and time involved in thisprocess. Minimal design particulars are offered by the projectcompanies in the prequalification bid document. This will caston the tenderer the onus of developing the design to the pointwhere he can confidently submit a firm price. In hydro electricEPC contract, more than four or more companies are to beinvolved in a consortium to offer the overall services to beprovided, which habitually set hurdles to the bidding process.(Head 2000:5). In hydro electric projects, the management ofrisks due to flooding during construction of the project iseffectively a commercial decision, thereby balancing theincremental expenses of augmented flood safeguard againstthe chances and outcomes of particular floods happening. Thisis mainly a concern of risk allocation between the contractor,the owner and the insurer and normally would not involve thehost government. (Head 2000:19). For instance, in Turkey,geological risk in a hydro project is passed to the contractorfrom the project company. This is an obvious departure fromthe usual contract EPC terms. When the availability of workis very limited, some contractors dare to accept such risks,although it is highly debatable whether it is in either partysinterest. In Philippines Casecnan power project, whichincluded about twenty-six kilometre tunnel and an undergroundpower manufacturing unit, for which virtually no siteinvestigation was possible and the contractor undertook thewhole risk of unpredictable ground scenarios within his fixedprice quote. However, he failed midway through the contractand had to be replaced. Thus unforeseen risk may cost anEPC contractor his job and his resources.Likewise, in Malaysias Bakun hydroelectric project, an EPCcontractor made a lump sum price bidding with no priceescalation for unforeseen risks. In that project, excavation oftunnels disclosed weaker rock conditions than expected, needingan addition of the steel liner. This is a common issue, but itcannot be anticipated in advance and may materialise only duringthe construction stage and will have huge cost implications thatcannot be borne by the contractor due to its magnitude, especiallyin a lump sum EPC contract where if there is any absence ofprovision of price inflation for such an eventuality, the EPC


Articlescontractor may be able to restructure the cost effect by makingsome changes in design, but it may have an impact on the finalquality of the project. Further, such design change may end ina debate over whether the proposed changes can be acceptableunder the contract. (Head 2000:57).In an EPC or turnkey project, competitive price bidding canbe made possible with certain kind of sharing of risks asmentioned below. EPC contract containing both a lump sum and re-

measurable portion and re-measurement is mainlyapplicable to civil works and unexpected geological risks,especially in case of flooding, weaker rock conditionsor other unforeseeable events.

Restricting the re-measurable portion of contract; hencethe owner undertakes lesser risk leaving the contractorto assume an unlimited risk.

A stratum approach where the employer, insurancecompany and the contractor bear some portion of risk ina predefined order.

Cost overrun has to be shared on a predeterminedpercentage basis.

Specific geological associated risk in the construction isto be passed on to the owner or the contractor but withreimbursement of additional expenses to avoid what hadhappened in Casecnan power project and in Bakunhydroelectric project.

Thus, an EPC contract may have risk-sharing formulas and incase of any additional cost of risk due to happening of anunforeseen incident has to be met by sponsors of the projectthrough pumping in contingent equity, mainly to cater for thepossible cost overruns. (Head 2000:57).For instance, India was less successful in attracting privatefinance for its hydropower projects, mainly due to some riskallocation, which is hazardous to any project contract. Hence,it revised power policy to encourage private foreign investmentin its hydroelectric projects. The new pragmatic policies ofthe Indian government acknowledged the necessity to offerthe private developer safeguard against wide varieties of naturalrisk over which such contractor has no sway. Thus, for riskarising out of an unforeseen natural predicament, EPCcontractor will not be held liable. This may encourage a largenumber of international bidders to participate in a contractand may result in cost savings and timely completion of theproject (Head 2000:62).Ground Conditions

Sub-clause 4.12 of the Silver Book acts as a reference for several

reasons. Reading together with sub-clause 4.10, it imposes allobligations on the contractor for unforeseen site scenarios. Thus,the contractor runs this risk despite whether the employer offeredthe information on the original site conditions or where the siteconditions were, in fact, unpredictable. In fact, the aftermathof this clause is to make the contractor responsible forunpredictable or conditions, which are wholly out of the controlof a contractor. Thus, under Silver Book, the contractor has theresponsibility to bear the risk associated with unforeseen siteconditions. In fact, sub-clause 4.12 of the Silver Book spellsout that there shall be no modification in the contract price totake account of any unforeseen costs or difficulties. For instance,countries like Malaysia and Hong Kong allocate risk for differingconditions solely on the contractor in the government contracts.(Huse 2002:144).

Sub-Contractor

Though an EPC contractor is authorised to entrust the workto sub-contractors, the Silver Book sub-clause 4.4 spells outsome 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 performancebecomes impossible, a party may be condoned from carryingout a commitment under an EPC contract under the most legalsystem. However, there exists many numbers of legal precedentswhere courts were of the opinion that the doctrine ofimpossibility cannot be extended just because completion ofthe contract will happen to be more costly than earlier expected.Majority of contractors are under the wrong impression that theavailability of the force majeure clause will help them to succeedin their claim. It is to be noted that a force majeure clause isincluded into a contract as a way to safeguard parties if a sectionof the contract could not be completed due to the occurrence ofsome extraordinary incidence, which falls outside the controlof the parties and which could not have been forbidden usingrational care. Force majeure clause can ordinarily be seen in allthe construction contracts but normally such provision is meantto grant a contractor some extra period to complete the contract.Hence, whereas a force majeure clause may facilitate a contractorsome additional time to acquire materials that are in acuteshortage, it is doubtful of help to him if he is compelled to bearmuch escalated prices of material than he formerly forecasted.


ArticlesThe reality is that judges normally do not incline to permitsomebody to get away from an obligation under a contract underthe pre-text of force majeure clause. (Kerur 2005).

CONCLUSION

Of late, FIDIC has released a new form of contract that can beused with design and construction of projects employingengineering, procurement and construction contract or turnkeycontracting. Under this contract, the FIDIC conditions ofturnkey or EPC projects (known as the silver book) aredesigned to handle scenarios where bids are invited on aninternational basis. It has been specifically designed for use inEPC and BOT contracts. However, law firms and largecontractors will have their own in-house standard EPC contractand for these parties silver book may act as a solid referenceto update and review their in-house standard forms. For thoselaw firms and contractors, who do not have standard EPC,contractor or firms may use the Silver Book for drafting theirEPC contract terms. (Huse 2002: 48).Thus, a legal draftsman has to use not only standard terms asmentioned in the silver book but also to use his experience tocover force majeure, price escalation, sovereign immunity,unforeseen ground scenarios to safeguard the interest of thecontracting parties. A well planned and conceived and

methodologically drafted EPC contract will pay special attentionto the allocation of project risks and with specific reference tothe drafting of common terms in EPC contracts. Else, thecontractors interest will be affected, and he may have to incurpecuniary losses. Thus, while drafting the terms of internationalEPC contract and allocation of risks in the EPC contract, seriousconsiderations should be given while drafting of terms so thatinterests of both the contracting parties are properly secured. List of Reference

Bramble Barry B & West Joseph D. (1999). Design BuildContracting Claims. Illinois: Aspen Publishers Online.Head, Chris R. (2000). Financing of Private Power Projects. NewYork: World Bank Publications.Hoffman Scott L. (2008). The Law and Business of InternationalProject Finance. Cambridge: Cambridge University Press.Huse, Joseph A. (2002). Understanding and negotiating turnkeyand EPC contracts. New York: Sweet & Maxwell.Kerur Sachin [June 16 2005]. Sharing the Risks. (Online) availablefrom 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 GroupPublishing.


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Conceiving and Drafting the Terms of EPC Contracts