Article. Worlds Apart: a comparison of epc and epcm contracts

Transcription

1 Article Worlds Apart: a compariso of epc ad epcm cotracts By Nick Hechie, Parter - Costructio & Egieerig April 2008

2 Worlds Apart: a compariso of epc ad epcm cotracts For may years ow it seems that the most desired way for a Ower to procure a major costructio project, particularly oe beig project fiaced, was via a fixed price, lump sum turkey route; the so-called egieerig, procuremet ad costructio cotract (or EPC cotract ). More recetly, i respose to market coditios ad a improvemet i the egotiatig positio of EPC cotractors, there has bee a sigificat icrease i use of the EPCM cotract procuremet route for iteratioal ifrastructure ad major costructio works. Although historically this method was certaily ot ucommo i the miig sector, the use of EPCM cotracts has ow become more prevalet i other sectors of costructio. It seems to the authors that the meaig of EPCM (as opposed to EPC) is still relatively ukow amogst a large part of the costructio fraterity. The key cofusio which ofte arises is that whilst the C i EPCM stads for Costructio, this is i the cotext of CM i.e. Costructio Maagemet. Uder the EPCM model the cotractor does o buildig or costructio rather he develops the desig ad maages the costructio process o the Ower s behalf. Key differeces A EPC cotract is a desig ad costruct cotract where a sigle cotractor broadly takes resposibility for all elemets of the desig (egieerig), costructio ad procuremet. I cotrast, a EPCM cotract is a professioal services cotract which has a radically differet risk allocatio ad differet legal cosequeces. Services provided uder a EPCM cotract are typically: egieerig /desig; procuremet of ecessary materials ad equipmet; ad maagemet ad admiistratio of costructio cotracts. The EPCM cotractor acts as the Ower s aget ad creates (o behalf of the Ower) direct cotractual relatioships betwee the Ower ad the suppliers ad trade cotractors. The EPCM cotractor will ot usually take full resposibility for deliverig the completed project by a overall completio date (thus rarely are there liquidated damages provisios i EPCM cotracts for delay to the project as a whole), or will the EPCM cotractor take resposibility for care of the works or for the ultimate cost to the Ower of the project. The pricipal potetial liabilities of the EPCM cotractor relate to breach or egligece i: the performace of the desig work; the preparatio of the budget cost estimate; the preparatio of the estimated duratio of the work; maagig the procuremet ad admiistratio of the trade cotracts; ad co-ordiatio of the desig ad costructio betwee the trade cotractors. However, provig breach of these obligatios is rarely straightforward, ad i respect of preparig the budget cost estimate ad estimated duratio of the work, the Ower may struggle to establish a real loss, however egliget the EPCM cotractor may have bee.

3 Typical EPCM Arragemet Ower Ower EPCM Cotractor Specialised Egieerig Vedors Trade Cotractors EPCM Cotractor Specialised Egieerig Vedors Trade Cotractors Sub-Cotractors Sub-vedors Sub-Cotractors Sub-vedors Typical EPC Arragemet Ower EPC cotractor Ower Specified Egieerig Vedors Trade Cotractors EPC cotractor Site Services Advatages ad Disadvatages Specified The advatages of a EPC cotract from the Ower s poit of Trade view is that the cotractor Vedors takes full resposibility Egieerig for the followig: Cotractors Site Services cost of completio if it is a lump sum (subject to limited adjustmets); the time for completio (subject to extesios of time); ad the quality of the desig ad work ad achievemet of performace guaratees (subject to ay exclusio). This meas that the potetial for multiple disputes is also avoided. However, the major disadvatage for the Ower of the EPC cotract, whe compared to a EPCM cotract, is that the detailed desig is the cotractor's prerogative. Accordigly, i a EPC cotract, great care eeds to be take that the Ower specifies ad defies the desig parameters ad deliverables (icludig cosumptio of utilities ad emissios) so that the Ower obtais a project of the required stadard. 2

4 Equally, from the EPC cotractor's perspective, recurrig problem areas i EPC cotracts are bridgig iterfaces betwee the basic egieerig desig ad the executio uder a EPC cotract, i circumstaces where the EPC cotractor did ot produce the basic egieerig desig itself. The EPC cotractor is usually required to satisfy itself as to the accuracy of basic egieerig, or is deemed to have doe so eve where the bid period is patetly isufficiet to allow it physically to do so. From the Ower's poit of view, resolvig liability for ad the cosequeces of basic egieerig "defects" will be extraordiarily difficult ad expesive which is why it is wise to try to place full resposibility for these o the EPC cotractor. The cotractor which accepts such a risk without havig carried out a thorough evaluatio of the basic egieerig does so at its peril ad is ulikely to have recourse agaist the perpetrator of the errors. It could be a costly miscalculatio. Coclusio The solutio for the Ower i bridgig the iterfaces if the EPC cotractor is ot willig to assume resposibility for the basic egieerig or it is cosidered ulikely at project iceptio that ay EPC cotractor would take such a risk is to cosider alterative cotract strategies icludig EPCM which has the potetial for providig seamless ad cotiuous resposibility for the egieerig. But these issues eed to be thought through at coceptio of the cotract strategy takig ito accout the cotractors appetite for risk gauged accordig to the expected market coditios at the time of executio. Further, sice the EPCM route splits resposibility for egieerig ad costructio, the well advised Ower ought to be far more pro-active i its maagemet of the project. Thus, the Ower is well advised to esure that it has sufficiet i-house or other resources available to it to moitor ad check the performace of the EPCM cotractor durig the basic egieerig desig ad detailed desig phases, to esure that the Ower is gettig exactly what it wats i terms of performace, operability, maiteace ad whole of life cost ad by passig as much of the risk as possible i relatio to the cost of costructio, time for completio ad quality of the costructio work to the trade cotractors by effective trade cotracts. For the complete versio full details of this article, see publicatios/article.asp?id=3995&id=6 For further details o these or other costructio issues please cotact Nick Hechie or Joatha Hosie, Parters i our Costructio ad Egieerig Group. Nick Hechie Parter T +44 (0) E [email protected] Joatha Hosie Parter T +44 (0) E [email protected]

5 Mayer Brow offices Bagkok Beijig Berli Brussels Charlotte Chicago Cologe Frakfurt Guagzhou Haoi Ho Chi Mih City Hog Kog Housto Lodo Los Ageles New York Palo Alto Paris São Paulo Shaghai Washigto DC 11 Pilgrim Street Lodo EC4V 6RW T +44 (0) st Floor, 30 St Mary Axe Lodo EC3A 8EP T +44 (0) mayerbrow.com E [email protected] Mayer Brow is a global legal services orgaisatio comprisig legal practices that are separate etities ( Mayer Brow Practices ). The Mayer Brow Practices are: Mayer Brow LLP, a limited liability partership established i the Uited States; Mayer Brow Iteratioal LLP, a limited liability partership icorporated i Eglad ad Wales; ad JSM, a Hog Kog partership, ad its associated etities i Asia. The Mayer Brow Practices are kow as Mayer Brow JSM i Asia. 0110co April 2008