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name: epc-contract language: en description: Drafts turnkey Engineering, Procurement, and Construction (EPC) contracts for industrial facility projects. Covers scope of work, commercial terms, performance guarantees, risk allocation, warranties, and dispute resolution. Use when drafting EPC agreements, turnkey construction contracts, or energy infrastructure project contracts (power plants, petrochemical facilities, water treatment plants).

EPC Contract

Drafts a turnkey EPC contract establishing rights, obligations, risk allocations, and technical requirements between a project owner and contractor for design, procurement, construction, testing, and commissioning of an industrial facility.

Prerequisites

Gather before drafting:

1. Project description — facility type, capacity, throughput specs, location
2. Party details — legal names, entity types, jurisdictions, addresses, authorized signatories
3. Governing documents — RFPs, term sheets, LOIs, precedent agreements
4. Pricing structure — lump-sum, GMP, cost-plus, or hybrid
5. Schedule — target milestones, NTP conditions, substantial/final completion dates
6. Performance requirements — output capacity, efficiency, emissions, availability guarantees
7. Jurisdiction — governing law, regulatory/permitting regime
8. Insurance requirements — owner's minimum coverage expectations

Contract Sections

Draft all 14 sections in order.

1. Recitals & Parties

• Owner: legal name, entity type, jurisdiction, address, tax ID, authorized rep
• Contractor: same; if JV/consortium — lead contractor, liability structure (joint & several or allocated)
• Recitals: owner's objectives, contractor qualifications, turnkey intent

2. Definitions

Define at minimum:

Term	Criteria
Substantial Completion	Work complete except punch list; testing passed; performance met; regulatory approvals obtained; O&M docs delivered
Final Completion	Punch list closed; all performance tests passed at guaranteed levels; reliability demo done; training complete; final documentation
Contract Price	Fixed amount, inclusions, adjustment mechanisms
Change Order	Written modification to scope, schedule, or price
Force Majeure	Natural disasters, war, epidemics, government action, non-party labor disputes
Defect	Non-conformance with specs, drawings, guarantees, or codes
Warranty Period	Commencement trigger and duration

Include project-specific technical terms referencing industry standards (ASME, IEEE, ISA).

3. Scope of Work

A. Engineering — All disciplines (civil/structural, mechanical, electrical, I&C, process, environmental, safety); conceptual through detailed.

B. Procurement — Major equipment (turbines, generators, compressors, vessels, heat exchangers), bulk materials, spare parts, special tools. Identify owner-furnished items with interface requirements.

C. Construction & Installation — Site prep, civil, foundations, structural, mechanical/piping, electrical/instrumentation, insulation/painting/fireproofing. Reference applicable codes.

D. Testing & Commissioning — Factory acceptance → pre-commissioning → integrated systems → performance testing → reliability demo. Include owner witness rights and acceptance criteria.

E. Ancillary — Permitting (allocate owner vs. contractor), training (classroom + hands-on), documentation deliverables (design basis, as-builts, O&M manuals — specify format/schedule).

F. Exclusions — Land acquisition, off-site utilities to boundary, owner personnel, financing, owner-controlled insurance, owner permits.

4. Commercial Terms

Contract Price: Exact amount and currency. Pricing type (lump-sum/GMP/cost-plus/hybrid). Confirm all E, P, C, testing, commissioning, training, documentation included. Adjustments limited to owner changes, differing site conditions, force majeure, change in law.

Payment Schedule:

Milestone	Typical %	Conditions
Advance payment	5–10%	Advance payment guarantee required
Engineering milestones	Per deliverable	Basic/detailed design completion
Equipment delivery	Per item value	Delivery receipts
Construction progress	Monthly	Joint measurement/verification
Substantial Completion	Major tranche	Less retention
Final Completion	Balance + retention	All guarantees satisfied

• Retention: 5–10%; partial release at Substantial Completion, balance at Final Completion; contractor may substitute bond/LC
• Invoicing: Submit within [X] days; owner review 15–30 days; payment within 30 days of approval; interest on late undisputed amounts
• Taxes: Allocate sales tax, VAT, customs duties, import taxes

5. Schedule

• Commencement: NTP conditions precedent (site access, permits, financing)
• Duration: Calendar days/months from NTP to Final Completion
• Key milestones: Design → PO awards → long-lead delivery → construction start → mechanical completion → commissioning → Substantial Completion → performance testing → Final Completion
• Certification: Contractor notice → owner inspection → completion certificate

Delay Management:

Delay Type	Time Extension	Cost Recovery
Force majeure	Yes	No
Change in law	Yes	No
Government permit delays	Yes	No
Owner-caused delays	Yes	Yes
Owner scope changes	Yes	Yes
Differing site conditions	Yes	Yes

• Notice: prompt written notice + cause + critical path impact + time request
• Delay LDs: Daily/weekly rate for late Substantial Completion; cap 5–15% of contract price
• Early completion bonus (optional): per day/week ahead of schedule

6. Performance Guarantees

Guaranteed Parameters (select applicable):

Parameter	Value	Reference Conditions	Test Standard
Output capacity	[kW/units]	ISO or site ambient	ASME PTC
Efficiency/heat rate	[%/BTU/kWh]	Fuel spec, ambient	ASME PTC
Emissions	[g/unit] per pollutant	Operating conditions	EPA/regulatory
Availability	[%]	Defined period	Contract formula

• Include correction curves for reference conditions
• Test protocol: timing, duration, valid runs, stability criteria, instrumentation, data recording
• Retest rights: optimization period; max retests specified

Performance LDs:

Shortfall	LD Formula	Cap
Capacity	$/unit below guarantee	[X]% of contract price
Efficiency	PV of increased operating costs	[X]% of contract price
Emissions	Cost of additional controls	[X]% of contract price

• Rejection threshold: shortfall exceeding [X]% → owner may reject facility

7. Change Management

• Formal written change order required before work begins (emergency exception with retroactive approval)
• Contractor proposal within 10–20 business days: scope, cost breakdown, markup (10–20% OH&P), schedule/CPM impact, effect on guarantees
• Pricing: lump-sum, unit price, T&M, or cost-plus
• Owner review: 15–30 days
• Disputed changes: contractor proceeds under directed change order; pricing resolved via dispute resolution
• Cumulative changes exceeding [X]% trigger renegotiation or termination-for-convenience rights

8. Indemnification & Liability

Contractor indemnifies Owner for: bodily injury/death, property damage, regulatory violations, IP infringement, environmental contamination, breach.

Owner indemnifies Contractor for: owner negligence/willful misconduct/breach; defects in owner-furnished items.

Exceptions: Claims from sole negligence of indemnified party. Joint negligence: comparative fault.

Procedure: Prompt notice → indemnifying party controls defense → cooperation → settlement limits.

Liability caps:

• Consequential damages mutually excluded (exceptions: gross negligence, willful misconduct, confidentiality, IP, environmental)
• Aggregate cap: contract price (or [X]x); uncapped: indemnity, IP, willful misconduct, fraud

9. Insurance

Coverage	Minimum Limit	Requirements
CGL	$10–50M per occurrence/aggregate	Additional insured; primary & non-contributory
Workers' Comp	Statutory per jurisdiction	Employers' liability $1M
Auto Liability	$1M CSL	All owned/hired/non-owned
Professional Liability (E&O)	$5–25M per claim/aggregate	Claims-made with 3–5 year tail
Builder's Risk	Full replacement value	Specify owner vs. contractor placement
Marine Cargo	Full shipment value	If international; origin to site
Pollution Liability	Project-appropriate	If environmental risk
Umbrella/Excess	Project-appropriate	Above primary policies

All policies: owner as additional insured, waiver of subrogation, 30-day cancellation notice, certificates before work starts.

10. Warranties

• Scope: All work free from defects in materials, workmanship, and design
• Period: 12–24 months from Substantial Completion; restarts for repaired/replaced items
• Materials: New unless specified; suitable for intended purpose
• Pass-through: Assign all manufacturer/supplier warranties to owner
• Defect correction: Written notice → repair within 24 hours (urgent) to 10 business days (non-urgent) → costs on contractor
• Self-help: If contractor fails to correct, owner may correct and charge contractor
• Security: Bond or LC, 5–10% of contract price; released on warranty expiration

11. Termination

Trigger	By	Notice/Cure	Contractor Gets
Cause (abandonment, schedule failure, insolvency)	Owner	Written + 10–30 day cure	Work performed only; liable for excess costs
Convenience	Owner	Written notice	Work + materials + demobilization + OH (no profit on unperformed)
Owner default (non-payment, suspension, breach)	Contractor	Written + cure period	Work + costs + anticipated profit on full contract
Extended force majeure (>6 months)	Either	Written notice	Work + costs (no anticipated profit)

12. Dispute Resolution

Tiered process:

1. Negotiation — Senior executives, 30 days
2. Mediation — Mutually acceptable mediator, 60 days
3. Binding — Arbitration (ICC/AAA; 1 or 3 arbitrators; specify seat/language) OR litigation (exclusive jurisdiction/venue)

• Governing law: [Jurisdiction], excluding conflicts-of-law. Exclude CISG if international.
• Fees: Each party bears own OR prevailing party recovers
• Jury waiver: Include if parties prefer bench trial

13. Administrative Provisions

• Notices: Written; delivery/courier/certified mail/email; effective on receipt
• Assignment: Contractor needs owner consent; owner assigns freely to affiliates/lenders
• Boilerplate: Entire agreement, amendments in writing, severability, non-waiver, mutual confidentiality, force majeure (notice + mitigation)

14. Execution

Signature blocks: entity name, signature, printed name, title, date. Add notarization/witness if required by governing law.

Pitfalls

• Confirm pricing structure before drafting commercial terms
• Mark uncertain statutory/regulatory citations with [VERIFY] for the specific jurisdiction
• Scale insurance minimums to project size and risk profile
• LD rates must reflect reasonable pre-estimates of actual damages to be enforceable
• Performance guarantees and test protocols are project-specific — confirm with user before finalizing
• For JV/consortium contractors, explicitly address lead designation and liability allocation
• Flag gaps in provided information — never assume critical business terms
• Verify internal consistency of cross-references, defined terms, and exhibit/schedule references
• For international projects: address currency, CISG exclusion, arbitration seat, language, import/export compliance