1. 2nd Annual Global EPC Contract & Risk Management
11:00 - Analysing Contractual Risk Management Tools,
7 October 2016, London, United Kingdom
Professor Nicholas Gould, Partner, Fenwick Elliott LLP

2. Introduction
Ascertain what solutions can best help in reaching contract deliverables
contract deliverables – defining the scope, price, time and managing change
Gain perspective from some of the leading solution providers on leveraging these solutions
using standard forms or bespoke EPC – key provisions
Assess pitfalls and challenge areas
challenges – managing change, design, ground conditions
Future projections and advancements
new FIDIC soon, CPs, DABs, EA, framework and partnering

3. In order to do this it is helpful to consider these issues in a chronological sequence:
EPC Contracts and their risks;
Causes of claims;
Managing a project – 5 steps for success;
Setting up the project;
Running the project;
Managing change;
Dispute avoidance;
Dispute management

4. EPC Contracts
Engineering, procurement and construction contracts are “turn key” contracts.
The contractor takes responsibility for design, engineering, procurement and construction of a completed working facility.
Onerous obligations and risks are placed upon the EPC contractor. This reduced the ability to make claims.
The cost is therefore often considerably higher than other forms of contracting.

5. Standard Form EPC Contracts
There are a number of globally recognised standard form EPC contracts, which include:
FIDIC Conditions of Contract for EPC/Turn-Key Projects (Silver book) 1999.
Infrastructure Conditions of Contract, Design and Construct version (2011).
ICC Model Turn-Key Supply of an Industrial Plant Contract (2003).
ICC Model Major Project Turn-Key Contract (2007).
European International Contractors Turn-Key Contract (1994).
In reality most EPC contracts are purpose written bespoke and lengthy.

6. Contractor Risks Under EPC Contracts
Design, and concept design
Assumption (deeming) of responsibility for accuracy of Employer Requirements
Performance and “fitness for purpose”
Single point responsibility
Lump-sum price
Procurement (supply, installation, design, permissions, permits etc.)
Adverse site conditions
Liquidated damages
Retention
Defective works

7. Causes of Claims
Howell and Mitropoulos [“Model for Understanding, Preventing and Resolving Construction Disputes, in Groton, 1994”] believe construction problems arise from:
Project uncertainty - complexity beyond the expectations of the parties etc
Process problems – incomplete documentation, unrealistic expectations etc.
People issues – poor communication, lack of responsiveness, unethical behaviour, opportunistic behaviour etc.

8. Kumaraswamy considers there are two key components which cause claims
Kumaraswamy [“Is Construction Conflict Congenital?” Arcom 96] considers causes under two categories: root causes and proximate causes
“Root Causes”
Unfair risk allocation
Unclear risk allocation
Unrealistic expectations
Uncontrollable external events
Adversarial industry culture
“Proximate Causes”
Incomplete tender documentation
Inappropriate contractual documentation
Poor communication
Personality clashes
Changes by client
Slow client responses
Inadequate contract administration
The causes manifest themselves as common claims, e.g. variations, unforeseen ground conditions, exceptionally inclement weather etc.

9. Claims under EPC Contracts
Employer instructed variations
Constructive variations
Delay in employer approvals
Possession of site
Feed availability
Utilities
Take off ability
Force Majeure
Acts of prevention

10. Managing A Project – 5 Steps for Success
Setting up the project
Running the project
Managing change
Dispute avoidance
Dispute management

11. Pervasive skills
Technical. The technical management and construction of the project to the specification and design.
Good communication. This means keeping the appropriate organisations informed about the project and the proactive management of the project.
Use the contract. Carrying out the work and communicating in accordance with the contract.

12. 1. Setting up the project
Follow the specification, ERs. CPs, specifications and drawings; seeking clarification and instructions in good time
Schedule the project, including design periods, approvals, procurement and lead in
Apply the contract
Appoint the DAB
Consider alternatives; expert determination, DRB, CDB, project mediator
Role of the Engineer or ER

13. 2. Running the project Programme
Clause 8.3 – within 28 days of Commencement of Works
Order and timing; design, documents, procurement, manufacture, delivery, construction, erection and testing
Supporting report, method and execution, labour resource
Progress meetings
Payment procedure – Clause 14
Process and substantiation

14. 3. Managing change Contract Price
Instructions and Variation Clause 13 (change)
Notices
Time – Clause 8.3
Money – Clause 14
Claims – Clause 20.1
Method of measurement
Evaluation
Determination – Clause 3.5
Employer’s claims – Clause 2.5

15. 4. Dispute avoidance Valuing change as it occurs – time and money
Making use of updated programmes, progress reports and valuations
Progress meetings
Steering committee meetings
Risk registers
Planned date for completion –v- Time for Completion
DAB visits

16. Identification of relevant facts and supporting evidence
Identification of relevant facts and supporting evidence will include:
Collating and reviewing relevant progress, resource and costs records;
Ensuring that any ongoing progress, resource and/or costs records which will be useful in supporting your position are being recorded;
Initial input from key personnel involved;
Collating any relevant technical information;
Identifying key factual and legal issues which will ultimately determine your liability/entitlement
Considering whether external experts (e.g. Delay analysts) or legal issues require input from external legal Counsel.

17. Heads of Claim Typical heads of claim: Extensions of time
Variations – direct cost (consider also fixed on and off site overhead)
Disruption
Prolongation costs (on site overheads)
Off site overheads/management time
Cost escalation (indices or as damages)
Profit
Delay penalty or liquidated damages
Performance liquidated damages
Actual damages

18. 5. Dispute management Claims, notices the DAB and beyond Clause 20.1
Emphasis is on the resolution of disputes during the construction phase
Time bar
Referral to the DAB
Decision within 84 days
Notice of dissatisfaction (28 days)
Amicable settlement (56 days)
Referral to Arbitration – care needed here

19. Lessons Learned Learning organisations EPC terms become more onerous?
Contractors increase prices in future bids?
Hold workshops during and at the end of a project?
Continue as we are?

20. Questions? Prof. Nicholas Gould Partner, Fenwick Elliott LLP
Visiting Professor, King’s College London
UK - Aldwych House, Aldwych, London WC2B 4HN UAE - Office 1A, Silver Tower Cluster I, Jumeirah Lakes Towers, Dubai