International Construction Law Review
WORLDS APART: EPC AND EPCM CONTRACTS: RISK ISSUES AND ALLOCATION
PHILIP LOOTS
Group General Counsel of Clough Limited (Australia)
NICK HENCHIE
Partner, International Construction and Engineering Group, Mayer Brown Rowe & Maw LLP
Introduction
For many years now it seems that the most desired way for an owner to procure a major construction project, particularly one being project financed, was via a fixed-price, lump-sum turnkey route; the so-called engineering, procurement and construction contract (“EPC contract”). By this route, funders and owners expect to get the degree of certainty as to time and costs that they require. Such has been the popularity of this method of procurement that organisations such as FIDIC responded to the need for appropriate standard forms that more closely reflected market conditions by, for example, the introduction of its Conditions of Contract for EPC/Turnkey Contracts (the Silver Book).1
Orgalime2
and ICC3
followed suit to join other standard forms produced by organisations such as ENAA,4
ICE5
and ECC.6
Most recently, FIDIC has responded to the requirements of the major development banks by introducing the MDB
1 See, for example, Nick Henchie, “FIDIC Conditions of Contract for EPC Projects—The Silver Book, Problems in Store?” [2001] ICLR 41 and A H Gaede, “An Unfortunate Shift from FIDIC’s Tradition of Being Even Handed and Focusing on the Best Interests of the Project” [2001] ICLR 41.
2 Following the publication of the new suite of FIDIC contracts in 1999, in particular FIDIC’s Silver Book, the Legal Committee of Orgalime decided to draft a new turnkey contract for industrial works, which could be used as an alternative to FIDIC’s Silver Book, but which provided for a fairer allocation of risk between the parties. Nick Henchie reviewed the differences between these two contracts in “The Orgalime Turnkey Contract for Industrial Works—An Alternative to FIDIC’s Silver Book?” [2004] ICLR 67
3 The ICC Turnkey Task Force is currently drafting a turnkey contract which can be used as an alternative to FIDIC’s Silver Book.
4 The ENAA have various model forms of contract for use on power plant construction, process plant construction and industrial plant.
5 For example, the ICE Conditions of Contract, Seventh Edition, have been drafted by clients, consultants and contractors to provide a simple and standardised contract specifically tailored for civil engineering projects.
6 Engineer Construction Contract, Third Edition, which has already been used extensively on major infrastructure projects in the UK including Heathrow Terminal 5.
Pt 3]
EPC and EPCM Contracts: Risk Issues and Allocation
253