EPC contracts: how to avoid disputes

EPC contracts can streamline large infrastructure projects by bundling engineering, procurement and construction phases, but they require clear risk allocation and proactive management to avoid disputes

- KASIA HALLIDAY

EPC (engineering, procurement, and construction) contracts emerged in the 1970s and 1980s as a response to the increasing complexity of large oil, gas, and power projects. By bundling all three project phases into a single agreement, the contractor is responsible for delivering the entire project. This delivery model is now also commonly used for infrastructure developments.

In EPC contracts, typically, the contractor manages all phases of the project, making for a streamlined process with a single point of communication and often significant risk transfer.

A key feature of EPC contracts is Front End Engineering Design (FEED), which follows concept design and helps secure budget approvals before tender. The FEED then guides detailed design and engineering. Previously, the FEED contractor was liable for guarantees and resolving issues, but now the EPC contractor assumes this responsibility upon contract award.

The complexities that can arise in EPC contracts demand full collaboration between the owner and contractor from the early stages of the project with particular attention to the critical triangle of cost, time, and quality at every stage.

In construction projects, disputes typically arise when the cost-time-quality triangle fails. Project owners must identify and communicate objectives and constraints clearly. Balancing cost, time, and quality requires considering the project's unique requirements and driving factors.