Articles

Conceiving and Drafting the Terms of EPC Contracts

R. V. Seckar, FCS, ICSA (UK), Company Secretary, Chandra Group of Companies, Kakinada.
Engineering, Procurement and Construction Contract, commonly known as EPC contract are common in the construction of large power plants, infrastructure projects and the like. While emphasising the care and caution to be taken while drafting the term of such a contract, this article discusses elaborately the various other points to be considered in such an exercise.

e-mail : rvsekar2007@gmail.com

INTRODUCTION
The term EPC means Engineering, Procurement and Construction contract. An EPC Contractor is engaged in the construction of large power plants, large industrial plants, giant industrial infrastructure, power transmission and distribution, railways and in oil and gas industry. Some of the famous EPC contractors are ABB, L&T, Uhde India, Tata Projects Ltd, IRCON International Ltd, etc. Under an EPC contract, the contractor offers all the engineering, procurement and construction activities. In an EPC contract, the contractor will be held responsible for any defect in the construction, design or performance of the works. Moreover, in an EPC contract, both the design and construction are placed on the contractor along with a harsh standard of performance. Hence, the personnel engaged in drafting of EPC contract have to pay special attention to the allocation of project risks and with specific reference to the drafting of common terms in EPC contracts. Else, the contractors interest will be affected, and he may have to incur pecuniary losses and implementation of the project may be delayed. This article analyses the points to be taken into consideration while drafting the terms of international EPC contract and allocation of risks in the EPC contract so that interests of both the contracting parties are secured. In drafting the EPC contracts, legal practitioners may use standard form contracts as a basis for their contract document. These template or boiler contracts offer a familiar starting point to lessen the drafting trouble and to make easy negotiation. FIDIC (The Federation Internationale des Ingenieurs Conseils) of late released a new form of contract that can be used in design and construction of projects thereby employing the same to the engineering,procurement and construction contract or

turnkey contracting basis. Under this contract, the FIDIC Conditions of Turnkey or EPC Projects (famously known as the silver book) is designed to handle scenarios where bids are invited on an international basis. It has been specifically designed for use in EPC and BOT contracts. However, law firms and big contractors will have their own in-house standard EPC contract and for these parties, silver book may act as a solid reference to update and review their in-house standard forms. For those law firms and contractors, who do not have standard EPC, contract forms may use the Silver Book for drafting their EPC contract terms. (Huse 2002:48). However, there are obvious tensions between a project company and a contractor where a turnkey EPC contract is used. The drafters of EPC contract has to pay special attention to the allocation of project risks and with specific reference to the drafting of common terms in EPC contracts. Else, the contractors interest will be affected, and he may have to incur pecuniary losses.

ANALYSIS
An EPC Contract is also known as the fast-track contract. It combines three stages of construction contract under the ambit of one contract. It combines the construction, procurement and engineering aspects into one single contract. It facilitates the growth on a project to proceed on an overlapping basis than if the three stages have been taken over in series. The package deal or turnkey arrangement or design or build , cle-en-main or EPC imposes the duty to construct and design solely on the contractor. There is no standard explanation for each of these terms in the construction sector. The phrase turnkey connotes the most extreme structure of placing the design and construction obligation on the

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Conceiving and Drafting the Terms of EPC Contracts

contractor, such that after completion, the employer will be given the key to project to start the operation of the constructed project. There are potential complex contractual structures in any BOT (Build, Operate and Transfer) contract. In majority cases, the BOT projects will employ either an EPC or a turnkey contract for the actual construction and design aspect of the contract. Hence, a BOT is not a separate style of construction contracting but rather a technique of financing the project. In case of BOT contract, the lenders will have considerable sway on the condition of the underlying construction contract including the prerequisites that such a contract be on a turnkey basis or in the guise of an EPC contract. In BOT contract, the operation period between finishing and transfer also offers the transferee a chance to authenticate the quantity and quality of the productivity of the completed project work. Accordingly, in a BOT contract, a contractor may be obliged to give training of the transferees employees before the actual transfer of the project is completed thereby easing any possible tension that may arise in the contract. The contract provision should be drafted by taking into consideration the accelerated deterioration of the work at the time of transfer of the project. Thus, a transferee will be required to pay attention to maintain the operators incentive to maintain the workflow properly and to circumvent any deterioration in the final phase of the contract just before the transfer to the transferee. The operator may in an effort to save on costs and at the terminal phase of the operating period, the contractor may indulge in a slowdown in the maintenance and operating expenditures resulting in accelerated worsening of the work scenario. Thus, contract provision in some BOT contract is drafted in such a manner by placing the responsibility on the operator to assume liability for defects for a shorter period subsequent to the transfer.

of supplies, materials, equipments and machinery to the project site. To organise financial functions such as reviewing of invoices, forecasting the cash needs and overseeing of accounting records. In a majority of contracts, often no separate procurement contract is employed especially in project financing and for the obvious reasons, a separate engineering contract is not employed. Instead, the turnkey construction contract is made to include all procurement work until the financial closure is successfully completed. (Hoffman 2008:170).

Construction Contract
This contract oversees the complete construction activities of the project. Thus, in a construction contract, the contractor undertakes to offer all constructions associated services including organisation of labour, supervision of the construction, management of tools, supplies, construction facilities, field engineering and site investigation. (Hoffman 2008:170).

EPC Contract
In an EPC contract, the contract structure will be much complicated as many participants are involved in the implementation of the project. Thus, either an EPC or a BOT contract often is not as simple as its definition connotes. There may be large number of parties involved under complex contract structure. For instance, in a hydroelectric project, the concerned government has granted a concession to the project development company. This project development company has in turn entered into separate contracts for the construction of the facility, its operation and maintenance during such concession phase and power purchase agreement (PPA) with an electrical supply utility. A consortium of contractors was assigned with the turnkey contract for the construction of the facility. Again, each of the turnkey contractors was also an equity stakeholder of the EPC contracting company as they will have to subscribe some portion of the equity of the project development company. Further, one of the subsidiaries of the turnkey contractor was assigned the operation of the facility after the completion of the project. Thus, in an EPC or a BOT project the contract has to be drafted by taking into account this complex structure involved in a typical power plant construction contract. Where a project is undertaken by a State or by a political entity, the EPC contractor assumes further risks in that project as the project may be affected in future. A successor government gaining power, whether it be federal, State or local may try to dishonour some part or whole part of

VARIOUS TYPES CONTRACTS Procurement Contract

OF

CONSTRUCTION

It provides for the methodical sourcing of work and supplies for a project. This contract includes stipulations that demand the architect or an engineer to perform the following functions: To frame bidding guidelines for equipment, machinery and supplies. To carry out an economic evaluation of the bids received; To arrange for export licenses and other governmental permissions, which are essential for the import or export

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Conceiving and Drafting the Terms of EPC Contracts

project contract entered into by the predecessor government. A best illustration of this type of action by a successor government to modify or change an EPC contract entered into by an earlier government is the Enron-Dabhol power project in India. In such cases, it is wise to incorporate termination payments and termination provisions in an EPC contract in favour of Project Company. If the government failed to honour its legal commitments, then these damage payments will have to be made by the defaulting government to the project company. It is sound to add a so-called statement of binding impact to other agreements or an implementation with the host nation. (Hoffman 2008:158). Further it is prudent to add a waiver of sovereign immunity clause in the EPC contract if it is entered with a host nations government or with an entity owned by a host nation. For instance, in Texaco Overseas Oil Petroleum Co / California Asiatic Oil Co v. Libyan Arab Republic1, it was held that the government cannot employ its sovereignty to ignore obligations and cannot cancel the privileges of the contracting party who has executed its multiple duties under the contract through an internal order of the government. (Hoffman 2008:158). In case of sovereign immunity, a government may waive such immunity either through explicit or implicit actions. In Morgan Guaranty Trust Co v. Republic of Palau, the Republics sovereign immunity was waived by the President of the Republic while entering into loan agreements with companies of U.S.A origin in respect of construction of power plants. Later, the financing company sued the Republic when it failed to make payment under a guarantee and defaulted on its payment obligations. It was held by the court that Republic was under obligation to reimburse the guarantors. According to court, the President of the Republic by signing the agreement and by supporting the financing with the full faith and credit of the Republic has the obligation to honour the commitments made already. (Hoffman 2008:159). In Saudi Arabia v. Arabian Oil Co (Armco)2 , it was held by an International Arbitration tribunal that laws of Saudi Arabia had to be supplemented or construed by the general principles of law, by the practice and customs and usage in the oil business and by thoughts of untainted jurisprudence and the defendants rights could not be protected in an authentic style by the legislation in force in Saudi Arabia. In Mobil Oil Iran Inc v. Islamic Republic of Iran3 , as regards the applicable law in a contract, the Iran-United States Claims Tribunal has often corroborated its stand on applicability of
1. 21 I.L.M 726,735-36. (1982). 2. 27 ILR 117 ,168 (1963). 3. US CI Trib Rep 3, 64-65 (1987)

law by having recourse to its own international nature. An issue of confiscation will always look at in the background of applicable international law only irrespective of the fact of the law preferred by the parties. Financial institutions and banks will make a further stipulation while granting finance to the project as to offer them some certainty as to their financial risk. Thus, lenders may be placed with a significant amount of certainty if lump-sum bidding or if much risk is placed on the contractor for completion of the project.

EPC CONTRACT (OLD EXAMPLE)

Project Company

Engineering Contractor Equipment Vendor

Fabrication Contractor

EPC Contractor

EPC CONTRACT (NEW EXAMPLE)

Project Company

Main Contractor EPC Engineering Contractor

System Vendor

Facrication Contractor

EPC Contractor

Equipment Vendor

Source: (Wilpert & Fahlbruch 2002:214)

EPC, TURNKEY AND DESIGN BID CONTRACT

Dissimilarities exists between these contracts. Under an EPC contract, the contractor offers all the engineering, procurement

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Conceiving and Drafting the Terms of EPC Contracts

and construction. In a design-bid contract, the employer offers the design, which often includes the description of materials to be used and other major construction parameters. Under a turnkey contract, it is the obligation of the contractor to supply the final design of the project. Thus, under EPC contract, the contractor will be held responsible for any defect in the construction, design or performance of the works. The employer has to demonstrate to what degree resultant damage was caused by defective design or by the faulty construction under a design-bid build contract. (Huse 2002: ix). Under EPC contract, both the design and construction are placed on the contractor along with a harsh standard of performance. The standard of performance applicable will be contained in the contract or in the non-existence of any explicit provision, by the applicable law. Under the Silver Book, the standard is fitness for purpose. As laid down in English case law namely IBA v. EMI and BICC4 , a turnkey contractor is under strict liability to deliver the work fit for the purpose for which it was constructed. (Huse 2002:18). To choose the best design and quality of work, in EPC contract, the bidding process will be consisting of five stages; prefeasibility, feasibility, bidding, evaluation of bids and award of the contract and the negotiation. Such phased bidding will help the employer to first evaluate the quality of the design at first and then only the bid price. The fitness for purpose standard can be explained a stricter standard than a professional duty of care as it places onerous on the contractor for any defect or failure of design to perform to the standards needed.

chief construction contracts becomes a confront and many contractors incur major pecuniary losses or attrition of expected incomes since the most of the construction contractors are bound by predetermined-priced EPC contracts where they have to accept the risk of increases in both supplier and material costs. Devoid of a distinctly worded price appreciation provision that permits for a modification to the price of the contract due to the occurrence of an unforeseen event or, an unforeseen increase in the whole-sale prices of major construction related materials, a contractor may have to bear the unbearable pecuniary loss. Further, an EPC contractor may not get a relief as, even if the contract has turned to be onerous, which will not normally be adequate legal stances for execution of the contract to be exempted by the courts. (Kerur 2005). Since, EPC contract is a fixed price or lump-sum price contract, unless the contract specifically provides for a price increase due to the occurrence of some modifications or events, it is wise to add a price increase clause in the EPC contract to safeguard the interest of the contractor against price volatility in the near future. For instance, the courts in U.S.A hold parties responsible for their contractual agreements. For instance, in Iowa Electric Light and Power Co v. Atlas Corp5 , the court ordered that the uranium supplier had to honour his contractual obligation to supply the uranium to the utility though the price of the Uranium to the supplier had increased considerably later. This case stresses the significance to include price escalation clause in an EPC contract to safeguard against the incurring of financial loss due to price escalation in the later date. Further, in an EPC contract, contractual provisions can be included in the contract to pardon performance upon the happening of discussed events like price increases. In Eastern Airlines v. McDonnell Douglas Corp, the court held that the doctrine of force majeure clause will not be applicable where a future event was particularly mentioned in the contract. (Hoffman 2008:192). Since the contractor assumes overall control over the project, the employer may desire to restrict the capacity of the contractor to obtain such increases. Generally, courts will insist that a contractor must carry out the construction work at the rate agreed especially in predetermined-priced EPC contracts, which assign risk and, which do not contain a precise clause permitting for modification in prices. In the present economic scenario, EPC contracts tender prices are towering and service providers insist that if the project owners are ready to share more risk, then they will get more competitive bids. For instance, EPC contract awarded by Dubai municipality are footed on FIDIC contract
5. 445 U.S 911 ( 1980)

DRAFTING OF EPC CONTRACTS

While drafting EPC contacts one should give importance to the following aspects:

The Scope and Definition of the Works

The scope of work has to be clearly drafted and requirement of an employer should be drafted precisely to define the liability of the contractor for design, construction and performance.

Increase in the price

The real issue for suppliers and EPC contractors working in the current unpredictable materials price inflation scenario such as cement, steel etc. is that forecasting, quoting and executing
4. (1980) , 14 BLR 1

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Conceiving and Drafting the Terms of EPC Contracts

stipulations but so far, do not mirror the suggestion by FIDIC that terms for modifications in bids for variations in cost should be introduced where it might be unjust for a service provider to assume the whole of the risk of increasing costs associated with inflation. From the perspective of a project owner, the notion of conveyancing a price-increase provision in a contract may appear like issuing a blank cheque, albeit he might get profit out of it. If the contract is allowing the contractor to charge his rate on current prices and any real enhancement, rather than a standard-price quotation with tentative eventualities, in such cases, the project owners might save some handsome money and may avoid any unwanted delay and overrun in the timely construction of the project. In any EPC contract, the terms should have a price-escalation provision which should recognise the exact materials regarded to be unstable and the prices per unit for such project materials is to be charged at rates which prevailed at the time when the contract is completed. Normally, these provisions should illustrate unambiguously that the project owner will be responsible for any increase in price in those basic construction materials like cement, steel and the total price of contract to be augmented by a settled percentage to offset the loss due to price escalation. A rational provision will lay out periods of notice for recognition of price augmentation and to shun disagreements at later dates, to audit and verify the category of documentation demonstrating the price increase, the incident that activated such a boost in price of contract, what is the proper assessment of the market price, what are the time periods covered and how frequent the increase in the contract price can be made.

performance tests are to be made before or after such completion. Thus, under the customary design-bid-build contract, the designer and construction contractor will be held liable for varied yardsticks of performance for the completion of the works. It is to be noted that designers in many countries are not needed to undertake for results, but rather method. It is expected from them that they have higher supreme knowledge on the subject, competent enough and can finish the design with a rational magnitude of technical skill. For instance in Surf Realty Corp v. Standing6 , the U.S court held that the designer, while preparing the drawings and design, should exercise his ability and skill, taste and judgement rationally and without neglect. Thus, this principle needs a professional duty of care. (Huse 2002: 18).

Liability for Defects

An EPC contract should include a provision as to decide the period of time up to which the contractor will be held responsible for rectifying any defect that may occur in the works.

Consortium or a Joint Venture

Where a contractor uses a consortium or a joint venture for the project, a specific provision will need to be included that it is essential to elect a representative among consortium with adequate decision-taking authority to facilitate interaction with the employer.

Other matters
Provisions relating to contractors duty to safety and protection, to adhere to local laws and regulations have to be drafted.

Onus for the design supplied by the employer

In an EPC contract, it should be wise to allocate the risk pertaining to design supplied by the employer between the parties by way of specific provision.

Allocation of Risk in EPC Contract

In an EPC contract, the risk allocation will be made in the following manner. The project company will assume the market risk and in a power project, the power purchaser will accept the risk to a limited extent. The EPC contractor will assume the design, construction and commissioning risks. The risks arising out of operation and maintenance will be borne by the O& M contractor. The overall political risk like rebellion, war and delays by authorities will be borne by the respective government, mainly through concession agreement. It is recommended that the respective government should accept these political risks as they are the sole party who could either influence or control it and can lessen its impacts. Provisions concerned with risk allocation have to be drafted so that it would reflect the language of the agreement and other
6. 78 S.E .2d 901 at 907 (1953)

Employer Risks
An EPC contract has to specify the risks associated with the employer.

Performance Guarantee
There should be provision in the EPC contract for the performance guarantee by the contractor by way of providing bank guarantee or other guarantee or by way of retention money.

Completion
An EPC contract should contain a provision regarding the extent and nature of completion needed before the employer takes over the works. It is to be ascertained whether any

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Conceiving and Drafting the Terms of EPC Contracts

concession. Further, it has to take into account the considerations like identical language for extension of time and force majeure events. Such back-to-back language minimises the extent of gaps and vagueness between various agreements. A dispute resolution clause in the EPC contract will not only save time but also cost and helps to find a fast solution to any issue between the parties. (Huse 2002: 48). There are four fundamental risk-of-loss methodologies that an owner can impose in his EPC contract. (a) Demand the EPC contractor to wholly responsible and to totally indemnify the owner, all for all, possible losses. (b) Discharge the EPC contractor from indemnity and responsibility and to fully reimburse or indemnify the owner for all damages or losses. (c) Impose an overall ceiling limit on the EPC contractors responsibility and indemnify for selected or for all losses. (d) Adjust or modify one or more of the approaches mentioned in tune with the owners predestined risk management program. (Bramble & West 1999:105) The other parameters are as follows : 1. EPC contractor should be imposed with the sufficient risk to motivate them to execute the contract in a professional style. However, imposing of unreasonable or excessive risk will hinder innovation and maybe yield negative results. 2. Risk allocation should be footed on the profit or return that the party espousing risks that may actually have anticipated from its participation in the project. 3. The extent of control over the risk to be distributed must be taken into account in establishing a suitable allocation of responsibility. 4. It should be seen that the party is having the ability to cover the risk through insurance or by other methods, which are a crucial element in risk allocation. ( Bramble and West 1999 :101) 5. Full indemnity and responsibility are obtained from EPC contractors by owners for all equipments and tools either owned or rented by the contractor used in the project site. 6. For all equipments and tools supplied or loaned by the owner to the contractor, full responsibility is placed on the EPC contractor for use in carrying out the work and many owners contractly negate such representation or fitness for such an equipment and tool.

7. In some scenarios, the owner and the contractor may agree to share losses and responsibilities equally or jointly. Here, only to the degree of a proportionate share of negligence, each party would agree to indemnify each other. Thus, by agreement or through a court or through a commercial arbitration, each partys liability will be determined in case of loss due to negligence. In the case of EPC hydro contracts, contractors are always reluctant to forward their bid unless they are short listed in a prequalification bid due to expenses and time involved in this process. Minimal design particulars are offered by the project companies in the prequalification bid document. This will cast on the tenderer the onus of developing the design to the point where he can confidently submit a firm price. In hydro electric EPC contract, more than four or more companies are to be involved in a consortium to offer the overall services to be provided, which habitually set hurdles to the bidding process. (Head 2000:5). In hydro electric projects, the management of risks due to flooding during construction of the project is effectively a commercial decision, thereby balancing the incremental expenses of augmented flood safeguard against the chances and outcomes of particular floods happening. This is mainly a concern of risk allocation between the contractor, the owner and the insurer and normally would not involve the host government. (Head 2000:19). For instance, in Turkey, geological risk in a hydro project is passed to the contractor from the project company. This is an obvious departure from the usual contract EPC terms. When the availability of work is very limited, some contractors dare to accept such risks, although it is highly debatable whether it is in either partys interest. In Philippines Casecnan power project, which included about twenty-six kilometre tunnel and an underground power manufacturing unit, for which virtually no site investigation was possible and the contractor undertook the whole risk of unpredictable ground scenarios within his fixed price quote. However, he failed midway through the contract and had to be replaced. Thus unforeseen risk may cost an EPC contractor his job and his resources. Likewise, in Malaysias Bakun hydroelectric project, an EPC contractor made a lump sum price bidding with no price escalation for unforeseen risks. In that project, excavation of tunnels disclosed weaker rock conditions than expected, needing an addition of the steel liner. This is a common issue, but it cannot be anticipated in advance and may materialise only during the construction stage and will have huge cost implications that cannot be borne by the contractor due to its magnitude, especially in a lump sum EPC contract where if there is any absence of provision of price inflation for such an eventuality, the EPC

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Conceiving and Drafting the Terms of EPC Contracts

contractor may be able to restructure the cost effect by making some changes in design, but it may have an impact on the final quality of the project. Further, such design change may end in a debate over whether the proposed changes can be acceptable under the contract. (Head 2000:57). In an EPC or turnkey project, competitive price bidding can be made possible with certain kind of sharing of risks as mentioned below. EPC contract containing both a lump sum and remeasurable portion and re-measurement is mainly applicable to civil works and unexpected geological risks, especially in case of flooding, weaker rock conditions or other unforeseeable events. Restricting the re-measurable portion of contract; hence the owner undertakes lesser risk leaving the contractor to assume an unlimited risk. A stratum approach where the employer, insurance company and the contractor bear some portion of risk in a predefined order. Cost overrun has to be shared on a predetermined percentage basis. Specific geological associated risk in the construction is to be passed on to the owner or the contractor but with reimbursement of additional expenses to avoid what had happened in Casecnan power project and in Bakun hydroelectric project. Thus, an EPC contract may have risk-sharing formulas and in case of any additional cost of risk due to happening of an unforeseen incident has to be met by sponsors of the project through pumping in contingent equity, mainly to cater for the possible cost overruns. (Head 2000:57). For instance, India was less successful in attracting private finance for its hydropower projects, mainly due to some risk allocation, which is hazardous to any project contract. Hence, it revised power policy to encourage private foreign investment in its hydroelectric projects. The new pragmatic policies of the Indian government acknowledged the necessity to offer the private developer safeguard against wide varieties of natural risk over which such contractor has no sway. Thus, for risk arising out of an unforeseen natural predicament, EPC contractor will not be held liable. This may encourage a large number of international bidders to participate in a contract and may result in cost savings and timely completion of the project (Head 2000:62).

reasons. Reading together with sub-clause 4.10, it imposes all obligations on the contractor for unforeseen site scenarios. Thus, the contractor runs this risk despite whether the employer offered the information on the original site conditions or where the site conditions were, in fact, unpredictable. In fact, the aftermath of this clause is to make the contractor responsible for unpredictable or conditions, which are wholly out of the control of a contractor. Thus, under Silver Book, the contractor has the responsibility to bear the risk associated with unforeseen site conditions. In fact, sub-clause 4.12 of the Silver Book spells out that there shall be no modification in the contract price to take account of any unforeseen costs or difficulties. For instance, countries like Malaysia and Hong Kong allocate risk for differing conditions solely on the contractor in the government contracts. (Huse 2002:144).

Sub-Contractor
Though an EPC contractor is authorised to entrust the work to sub-contractors, the Silver Book sub-clause 4.4 spells out some mandatory provisions with regard to sub-contractors. The above sub-clause imposes the following : An EPC contractor cannot sub-contract the whole of the work to sub-contractors. It makes the EPC contractor liable for the activities of his agents, sub-contractors and employees.

Force Majeure Clauses

Due to the occurrence of an unexpected event, if performance becomes impossible, a party may be condoned from carrying out a commitment under an EPC contract under the most legal system. However, there exists many numbers of legal precedents where courts were of the opinion that the doctrine of impossibility cannot be extended just because completion of the contract will happen to be more costly than earlier expected. Majority of contractors are under the wrong impression that the availability of the force majeure clause will help them to succeed in their claim. It is to be noted that a force majeure clause is included into a contract as a way to safeguard parties if a section of the contract could not be completed due to the occurrence of some extraordinary incidence, which falls outside the control of the parties and which could not have been forbidden using rational care. Force majeure clause can ordinarily be seen in all the construction contracts but normally such provision is meant to grant a contractor some extra period to complete the contract. Hence, whereas a force majeure clause may facilitate a contractor some additional time to acquire materials that are in acute shortage, it is doubtful of help to him if he is compelled to bear much escalated prices of material than he formerly forecasted.

Ground Conditions
Sub-clause 4.12 of the Silver Book acts as a reference for several

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Conceiving and Drafting the Terms of EPC Contracts

The reality is that judges normally do not incline to permit somebody to get away from an obligation under a contract under the pre-text of force majeure clause. (Kerur 2005).

CONCLUSION
Of late, FIDIC has released a new form of contract that can be used with design and construction of projects employing engineering, procurement and construction contract or turnkey contracting. Under this contract, the FIDIC conditions of turnkey or EPC projects (known as the silver book) are designed to handle scenarios where bids are invited on an international basis. It has been specifically designed for use in EPC and BOT contracts. However, law firms and large contractors will have their own in-house standard EPC contract and for these parties silver book may act as a solid reference to update and review their in-house standard forms. For those law firms and contractors, who do not have standard EPC, contractor or firms may use the Silver Book for drafting their EPC contract terms. (Huse 2002: 48). Thus, a legal draftsman has to use not only standard terms as mentioned in the silver book but also to use his experience to cover force majeure, price escalation, sovereign immunity, unforeseen ground scenarios to safeguard the interest of the contracting parties. A well planned and conceived and

methodologically drafted EPC contract will pay special attention to the allocation of project risks and with specific reference to the drafting of common terms in EPC contracts. Else, the contractors interest will be affected, and he may have to incur pecuniary losses. Thus, while drafting the terms of international EPC contract and allocation of risks in the EPC contract, serious considerations should be given while drafting of terms so that interests of both the contracting parties are properly secured.
List of Reference Bramble Barry B & West Joseph D. (1999). Design Build Contracting Claims. Illinois: Aspen Publishers Online. Head, Chris R. (2000). Financing of Private Power Projects. New York: World Bank Publications. Hoffman Scott L. (2008). The Law and Business of International Project Finance. Cambridge: Cambridge University Press. Huse, Joseph A. (2002). Understanding and negotiating turnkey and EPC contracts. New York: Sweet & Maxwell. Kerur Sachin [June 16 2005]. Sharing the Risks. (Online) available from http://www1.fidic.org/resources/contracts/national/ dubai_jun05.asp [accessed 30 October 2009). Wilpert Bernhard & Fahlbruch Babette. (2002). System Safety: Challenges and Pitfalls of Intervention. New York: Emerald Group Publishing.