On 15 June 2018, Svitlana Teush, Head of the Real Estate and Construction practice of Redcliffe Partners, made a presentation entitled “EPC contracts: Employer’s outlook” during the FIDIC Business Days held in Kyiv.
Svitlana considered the common situations in which EPC contracts are used, including where the employer needs a turn-key solution while it itself lacks required capacity, resource or time, or where the lender requires such turn-key solution to be provided by an experienced EPC contractor. She emphasised the advantages of the EPC contract pattern from the employer’s and lender’s perspective, for example: introducing a single point of responsibility and avoiding risks relating to complex interfaces with multiple contractors; shifting most risks to the contractor; incentivising contractor’s efficiency under a lump-sum turn-key approach, etc.
Svitlana further discussed certain practical issues relating to the use of EPC contracts. These include: an accurate description of the expected result of works and its fitness for purpose; pass-through of warranties; interim acceptance of works; distinguishing between ownership and risk transfer (especially where the employer is looking to become an owner of plant and other assets, and to pledge them to lenders); introducing a role for an independent engineer (e.g. where the employer wishes to enhance control of works); and risk allocation, including for third party actions, changes of law and certain other circumstances beyond the parties’ direct control.
She noted that, in certain instances, split contract structures might be considered for legal and tax structuring reasons: for example, to meet licensing, importation, tax and currency control requirements.