Construction Law/EPC CONTRACT

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Question
the reason of employer opting for an EPC contract is to place singular responsibility of design and construct by a single entity although generally it costs a bit more to the employer. complete detail can never be defined for a finished product.  
what is your view on variation if asked by the EPC contractor for filling in the deficiencies in design and overlooked by the employer?

Answer
Dear Jamil

Thank you for a very important and relevant question regarding EPC Contracts. You are right that the Employer only opts for such type of a contract and is ready to pay a little more in order to transfer most of the risks involved to the contractor. You are also right that complete design details cannot be defined for a finished product. The ambiguity regarding the risks involved and the party responsible for it is very important to cleared before entering such type of a Contract.

The short answer to your query will be that in an EPC Contract, the Contractor is responsible for the design and the end product and therefore there is no question of a Variation Order for any deficiency in design. This is the reason that for an EPC Contract, details about design is not provided and only the end product, which must pass certain test upon completion to prove that it conforms to the requirement of the Employer, is defined. For this purpose details are worked out with the contractor before hand and after agreement of both the parties, the terms are set out in the Contract. After going through this process, the contractor is made responsible for the complete design and for producing the end product and all risks involved are transferred to the contractor. The Contractor himself is then responsible for any deficiency in his design. The approval by the Employer of contractor's design is only limited to ensure that the end product meets his requirements. Moreover the Employer is interested in the methods to be adopted and tests performed in order to ensure a quality product.

However there may be a situation where the Employer may need to change, by making an addition to or deletion of, his requirements. In addition, there may be Provisional Sum items in the Contract which are needed to be executed as per Employers instructions. All these changes and items will be executed by issuing Variation Orders. It is always advisable to ask for a proposal from the contractor or suggest a proposal for the execution of such works and ask for his comments before the issuance of a V.O by the Employer in order to reduce costs and mitigate disputes.

I hope this answers your question. If you still need any further clarifications, please feel free to ask further.  

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Abdul Majid Khan

Expertise

I am interested in questions related to time Extension, Liquidated Damages,variations, price adjustments,payments, disputes and Dispute Board under FIDIC IV, FIDIC 1999 and FIDIC 2006 Harmonized Documents.

Experience

I have been heading the Construction Management Division and Contract Divisions of National Engineering Services Pakistan (PVT) Limited, NESPAK, the largest Consulting Engineering Firm in Pakistan, for more than seven years and two years respectively. I have also worked as "The Engineer" on a number of projects. I have been working in Saudi Arabia for about seven years on a road projects. Additionally I worked as Arbitrator and am member of few Dispute Boards in individual capacity on Asian Development Bank funded projects.

Organizations
Inland and in Middle East. I have worked with National Engineering Services Pakistan (Pvt) Limited (NESPAK)as my Employer for more than 27 years in Pakistan. In Saudi Arabia I worked for Rashid Engineering, Consulting Engineers during 80s. After retirement I provided advisory services to NESPAK on technical and contractual matters to its various divisions and lately I was appointed as Advisor to Managing Director NESPAK on Technical and Contractual matters. Currently I work as Free Lance Contract Specialist on Fidic Form of Contracts.

Education/Credentials
I am a graduate with a B.E (Civil Engineering) degree. My year of graduation is 1970.

Awards and Honors
A few appreciation Letters and Honorariums during my service in NESPAK. I remained member of Administrative Committee and Board of Management of NESPAK. I had been part of the Management Committee in the absence of Managing Director.

Past/Present Clients
Most of the Clients used to be Government Departments, Corporations and Authorities. In Saudi Arabia the Client was Ministry of Communications. As Arbitrator and Dispute Board (DB) member, I provide services to various Government Departments and Contractors.

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