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636 1220 1 SM
636 1220 1 SM
636 1220 1 SM
EPC/TURNKEY CONTRACT,
LUMPSUM FIXED PRICE SUBJECT TO ADJUSTMENTS
Oleh :
Sarwono Hardjomuljadi
sarwonohm2@yahoo.co.id
Civil Engineering Department,Faculty of Engineering, University of Mercu Buana
Jakarta, Indonesia
Abstract : The most important thing before starting the construction project is deciding the
type of contract will be used for the project’s implementation. In order to get the proper
decision, the understanding on various conditions of contracts are required. In Indonesia
there are many project using the so called “modified” FIDIC Conditions of Contract for
EPC/Turnkey Project, but with the incorrect understanding on the reasons of using
EPC/Turnkey Contract, so instead of solving the problem it may caused bigger problems in
practice, many problems raised during the execution due to such incorrect understanding of
the spirit of EPC/Turnkey Contract. Most of Employers, in this case the government
institution or state owned enterprises in Indonesia, choose the EPC/Turnkey Contract with
minimum understanding of the essence of the EPC/Turnkey Contract. Their reasons of
choosing the EPC/Turnkey Contract was the “tied schedule” and the “higher certainty of
cost”. FIDIC EPC/Turnkey Contract based on the discussion in this paper, instead of fit the
Employer’s need only, the EPC/Turnkey Contract still give chance to the contractor to
submit their claim (Clause 20) and even the price is fixed, payment could be made once the
claim is accepted (Sub-Clause 17.4) means that additional to the contract price can be done.
One of the important noteworthy thing is that if there is additional cost it should be “added
to the contract price”, while in the conventional contract it should be “included in the
contract price”, so the final price will be the same (Sub-Clause 14.1).
Keyword: EPC/Turnkey Contract, tied schedule, higher certainty of cost, added, included.
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Jurnal Konstruksia | Volume 6 Nomer 2 | April 2015
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EPC/TURNKEY CONTRACT, LUMPSUM FIXED PRICE SUBJECT TO ADJUSTMENT (Sarwono)
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Jurnal Konstruksia | Volume 6 Nomer 2 | April 2015
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pile
foundation
for jetty
construction
10 ADIPALA 1 X 660 605,296,555 2,446,311,697,151 Potential
CILACAP CPP, Claim for
CENTRAL JAVA additional
length of
pile
foundation
for jetty
construction
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EPC/TURNKEY CONTRACT, LUMPSUM FIXED PRICE SUBJECT TO ADJUSTMENT (Sarwono)
The above tables show that problem most of Standard General Conditions
occurred in most of the project was of Contract. The spirit of clause
similar, i.e. claim on the additional related to “Unforeseeable Physical
cost due to the “unforeseeable Conditions” requires the contractor to
physical condition” (contractor’s observe the site condition from time to
opinion) where it was only the less time so he is able to find that condition
significant additional volume that timely
should actually be considered by the As an illustration, the length of the pile
Contractor before submitting the bid foundation was 5 meter based on the
(employer’s opinion). Most of the design (Contractor’s own design, but
claim was caused by additional length based on the information given by the
of the foundation, which actually employer at the time of tender and/or
being done based on the approved pre bid conference), but in the
working drawing prepare by the implementation, the length of the pile
Contractor and approved by the foundation have to be constructed 10
Employer. meter deep. In the contractor’s
“Unforeseeable physical conditions” is opinion this could be classified as UPC,
the contractor’s favorite clause: because their expectation while
The term ”Unforeseeable Physical signing the EPC Contract was exactly 5
Conditions (UPC)” and the like, is a meter.
contractual term specifically used in
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Jurnal Konstruksia | Volume 6 Nomer 2 | April 2015
Additional volume: There were two The Contractor had the schedule of
arguable opinions. The lawyer’s rates and prices attached to the
opinion saying that the additional contract, so in order to avoid further
length of the pile foundation in the failure, the Employer instructed the
above illustration was due to Contractor to use the former
something unforeseeable might be Employer’s design. The final price of
correct. Another opinion saying that it the pier then became even higher than
was just a less significant additional the original price of the pier with the
volume might be also correct, but no length of X meter
matter what it was, there was no
doubt that as the contract was signed Case 2:
it meant that it was understood and In the construction of a Coal Power
agreed by both parties as stipulated in Plant Q, the foundation was originally
the Sub-Clause 4.12 Unforeseeable designed using pile foundation with a
Difficulties of the FIDIC CC certain depth, say X meter, but during
EPC/Turnkey Project. the execution of the work the hard
rock was found deeper, say Y meter
Case 1: where Y > X.
In the implementation of In the contract, there was schedule of
EPC/Turnkey Contract for a Coal rates and prices attached to the
Power Plant Project P, the Contractor contract for foundation works. It
was responsible to construct the pier meant that the payment for this work
for unloading the coal. would be based on such unit price.
Based on the original design, the This showed that the Employer did
length of the pier was X meter but not fully understand the spirit of an
based on the supporting data of the EPC/Turnkey Contract which was
sea level, Contractor A in his bid actually a Lump Sum Fixed Price
proposed to reduce the pier length Contract as they also included Unit
into Y meter, where Y < X meter which Price work in the Contract.
was then agreed by the Employer. Due The final Contract Price increased
to that, the bid price submitted by since the substantive principle of an
Contractor A was lower than the other EPC/Turnkey Contract had been
contractors. abandoned due to the lack of
After the price and technical understanding on EPC/Turnkey
evaluation, Contractor A was then Contract.
appointed as the Contractor for the FIDIC Conditions of Contract is an
Coal Power Plant Project P to conduct engineered conditions of contract
the design, engineering, procurement required by the international lending
and construction works including the institution, unfortunately there is a
pier. During the construction, the misperception in the employer side
actual sea water level was lower than that the use of FIDIC Conditions of
predicted by the contractor when Contract facilitates the contractor in
preparing the design. The ship was submitting their claims which used to
consequently unable to unload and create disputes. In the writer’s opinion
the coal supply would be disrupted. the spirit of equality between
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EPC/TURNKEY CONTRACT, LUMPSUM FIXED PRICE SUBJECT TO ADJUSTMENT (Sarwono)
employer and contractor should not since once the contract is signed then
allow such misperception. The clause Sub-Clause 4.12(b) becomes valid.
allowing the contractor to submit The decision makers think that the
claim and the clause of Unforeseeable UPC clauses are the main causal factor
Physical Conditions and the like are of claims and therefore suggest that
the entry gate for the contractor to the clauses to be eliminated, whereas
recover their loss. the existence of clauses emphasizing
adjustment of the contract price
4. Unforeseeable Conditions and/or extension of time if
The term ”Unforeseeable Physical unexpected circumstances occurred
Conditions (UPC)” and the like, is a would reduce the contingency costs or
contractual term specifically used in hidden risk taking into account by the
most of Standard General Conditions contractor in his tender calculation.
of Contract. The spirit of clause Those clauses are based on the
related to “Unforeseeable Physical assumption that if the contractor
Conditions” requires the contractor to obtains adjustment of the contract
observe the site condition from time to price and/or extension of time when
time so he is able to find that condition encountering the Unforeseeable
timely. Physical Conditions (UPC), the
contractor should not consider the
Sub-Clause 4.12 Unforeseeable risk allocation in their tender price.
Difficulties Since the risks allocated by every
Except as otherwise stated in the contractor vary largely, it will be
Contract: easier in evaluating the submitted
(a) the Contractor shall be deemed tender if the risk allocations are not
to have obtained all necessary included and therefore the price
information as to risks, submitted will be a realistic one.
contingencies and other The hesitation to allow the UPC
circumstances which may Clauses makes the EPC/Turnkey
influence or affect the Works; Contract the employer’s first choice,
(b) by signing the Contract , the considering that all risks will be fully
Contractor accepts total shifted to the contractor. There is a
responsibility for having
tendency in Indonesia using the
foreseen all difficulties and costs
of successfully completing the EPC/Turnkey Contract instead of the
Works; and Conventional Construction Contract.
(c) the Contract Price shall not be Example clauses related to
adjusted to take account of any Unforeseeable Physical Conditions
unforeseen difficulties or costs. from some General Conditions of
(Conditions of Contract for Contract are as follows:
EPC/Turnkey Project-1999)
Clause 12.2. Not Foreseeable
In Clause 4.12 of Conditions of Physical Obstruction or Conditions.
Contract for EPC/Turnkey Project- If however, during the execution of
1999, it is clear that principally no the Works the Contractor encounters
“unforeseen conditions” is allowed physical obstruction or physical
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EPC/TURNKEY CONTRACT, LUMPSUM FIXED PRICE SUBJECT TO ADJUSTMENT (Sarwono)
allowed. But, the contractor still delayed, under Sub clause 8.4
possible to receive additional payment [Extension of Time for Completion];
if there are instruction and/or and payment of any such Cost, which
approval on the variations proposed “shall be added to” the Contract Price.
by the contractor. FIDIC Conditions of Contract for
It should be noted that the contract EPC/Turnkey Project could be
price while using the EPC/Turnkey categorized as the fair conditions of
Contract might be higher than using contract not only for the contractor
the Construction Contract, but in case but also for the employer. On choosing
that the allocation of time and cost are the EPC/Turnkey Contract, employer
limited EPC Contract might be the should realize that since there are
best. Another reason for using EPC in more risks allocated to the Contractor,
Indonesia is the certainty of cost the contractor will require more data
which is better than the uncertain cost on site conditions site including sub-
with huge additional cost and in order surface condition and need more time
not to be suspected especially by the to study the risks before submitting
Anti Corruption Committee, the the tender.
government super body to fight Learning from the experiences in
against the corruption. Indonesia the use of “tailor made”
By using EPC Contract the chance to EPC/Turnkey Contract by modifying
submit the claim is very limited. Once several clauses should be avoided, but
the contractor signed the contract it should be mandatory of using the
means they accept any site conditions original version of FIDIC Condition of
and the Contract Price shall not be Contract EPC/Turnkey Project along
adjusted to take account of any with the translation from the English
unforeseen difficulties or costs. version to Bahasa Indonesia which is
Eventhough there is no adjustment to published under FIDIC license as the
the Contract Price in the Conditions of supporting tools to deeply understand
Contract EPC/Turnkey Project, there the spirit of FIDIC Conditions of
is still chance for the contractor to Contract for EPC/Turnkey Project.
submit claim in accordance to Clause Another advantage for the employer
20 and by the existence of Sub-Clause by using the EPC/Turnkey Contract is
13.1 Right to Vary, where mentioned that the owner only needs to put in
variations may be initiated by the minimum efforts in his project as the
Employer at any time prior to issuing cost is already known at the beginning
the Taking Over Certificate for the of the project. Market cost fluctuation
Works, either by an instruction or by has an important influence to the
request for the contractor to submit a contractor side as there is no price
proposal and Sub-Clause 17.4 escalation clause in an EPC Contract.
Consequences of Employer Risks That is why the contractor has to pay
where mentioned that that the attention to the currency exchange
contractor shall be entitled subject to and price variation of materials and
Sub Clause 20.1 [Contractor’s Claim], labor in the market. All variations in
for an extension of time for any such cost are considered as the contractor’s
delay, if completion is or will be risks since by an EPC Contract means
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EPC/TURNKEY CONTRACT, LUMPSUM FIXED PRICE SUBJECT TO ADJUSTMENT (Sarwono)
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