Student Bootcamp Programme ET-Asia

Introduction to Engineering, Procurement,

and Construction Contract
Alta Mahandara - Partner at ADCO Law
Agenda

A. General Overview
1. What is an EPC Contract?
2. Legal Basis for an EPC Contract in Indonesia
3. FIDIC Contracts
4. The Purpose of EPC Contract
5. Transaction Structure
6. Advantages and Disadvantages of an EPC Contract

B. Important Clause in an EPC Contract

 EPC contracts are widely used in Indonesia for large-scale projects such as
What is an EPC Contract? power plants, industrial facilities, and infrastructure projects. This contract
stipulate that the contractor is responsible for the entire project from
design to completion, including engineering, procurement, and
construction.
Legal Basis
1. Law Number 2 of 2017 on Construction Services as Amended by Government Regulation in Lieu of Law Number 2 of 2022.

2. Government Regulation No. 22 of 2020 on Construction Services as amended by Government Regulation Number 14 of 2021
on Construction Services.

3. Presidential Regulation No. 16 of 2018 on Public Procurement of Goods and Services as amended by Presidential Regulation
No. 12 of 2021:

4. Law No. 13 of 2003 on Manpower as Amended by Government Regulation in Lieu of Law Number 2 of 2022.

5. Indonesian Civil Code

FIDIC Contracts
The three most commonly used FIDIC (Federation Internationale des Ingenieurs-Conseils International) contracts
are:

• Red Book The design are provided by the Employer

• Silver Book Contractor is responsible for both design and construction

• Yellow Book Employer provides the basic design and the contractor is responsible for detailed design and construction
The Purpose of EPC Contract
Maintaining equal rights and obligations of the parties:
• Contractor and Subcontractors – punctual payment for the agreed price vs
completion of the works
• Employer – punctual and functioned works vs punctual payment for the
agreed price.
Avoiding:
• Change in scope of works
• Variations
• Contractor’s claims (additional const and time); and
• Dispute
Mitigating the risks to:
• Cost
• Time
• Quality; and
• Safety.
Transaction Structure

Lender Employer
Construction
Engineer Contract
Back to back
Contractor

Subcontract
Agreement
Supplier Subcontractor
Advantages and Disadvantages of an EPC Contract
ADVANTAGES DISADVANTAGES
• Single point of responsibility • Limited flexibility

• Faster project completion • Higher costs

• Quality control • Limited owner control

• Fixed Price • Lack of transparency

• Bankability

• Cap and Limitation of Liability

• Easier contract administration

Important Clauses in an EPC Contract
Important Clauses in an EPC Contract
A. Scope of Work
B. Schedule of Work
C. Right and Obligation of the Parties
D. Contract Price
E. Payment Terms
F. Timeline for Completion
G. Change Orders/Variations
H. Quality Standards
I. Performance Bond
J. Handover, Testing and Commissioning
K. Warranties and Guaranties
L. Governing Law & Contract Language
M. Termination and Dispute Resolution
Important Clauses in an EPC Contract
A. Scope of Work
The scope of work of a contractor in an EPC (Engineering, Procurement, and
Construction) contract includes three main aspects:
 Engineering
Involves the work of technical design, planning, and development of
technical solutions to meet the client's requirements.
 Procurement
Involves the selection, ordering, delivery, and supervision of all equipment,
materials, and other resources necessary for the project.
 Construction
Involves arranging, coordinating, and carrying out all actions necessary to
build the project.
Important Clauses in an EPC Contract
B. Schedule of Work (Based on FIDIC Silver Book 2017)
Important Clauses in an EPC Contract
Rights and Obligations of the Parties

1. Rights of each Parties 2. Obligations of each Parties

• Pay the Contractor in accordance with the amount and

• Obtain work results in accordance with the
schedule agreed in the EPC Contract
standards, specifications and time agreed on the Employer • Submit a promissory note and payment plan to
Employer EPC Contract guarantee payment to contractor
• Terminate the agreement • Pay Overdue Fine
• Appoint Employer’s Representative • Provide information to the Contractor related to the
• Issue Change Order Work
• Issue a determination for claim of variations and
• Issue determination on variation request and
construction claim
claim • Comply with and implement safety and security
standards
• Receive Payment
• Terminate the contract • Design, conduct, and complete the work in
Contractor
• Obtain information related to the work Contractor accordance with the EPC Contract
• Request for change order • Repairing defects
• Claim for extension of time and or additional cost • Responsible for the safety of the methods used
• Receive overdue fines from the Employer in completing the work
• Pay liquidated damages
Important Clauses in an EPC Contract
Contract Price and Payment Terms

A. Contract Price
Lump sum
- A contract where the contractor agrees to complete the construction work for a fixed price, regardless
Contract Price of the actual cost of the work
Fidic Silver Book 2017:

Lump Sum Provisional Sum

Provisional Sum
- A certain amount that is separate from the Contract Lump Sum and is temporary where the quantity
Milestone and volume are uncertain.
- Usually related to spare parts that will be provided by the Contractor only when instructed by the
Employer.
B. Payment Schedule:
Milestones
- Based on the progress of the work that has been completed based on the schedule and work
specifications.
Important Clauses in an EPC Contract
Change Orders/Variations

Types of Variation:

• Instructed variation

a change that is requested by the owner and formally instructed by the contract administrator.

• Constructive variation

a change that arises from an issue that is not the contractor's fault. These changes typically arise
due to changes in legislation, unforeseen site conditions, or design errors.

How to effectively manage variations? Important Notes:

1. Identification of variation 1. Notification procedures within a certain period of time

2. Assessment of variation 2. the contents of the notification and supporting documents

causing
3. Negotiation 3. delays and additional costs that cause a change order
4. Variation order 4. determination by employer’s representatives
Important Clauses in an EPC Contract
Extension of Time and Additional Costs
The right of the Contractor to ask for an Extension of Time (“EOT”) and additional
costs in case there are:
• Employer’s default that affects the completion of work
• Employer do not make payments at all
• Changes in laws and regulations that materially affect the Works
• There are change orders from Employer including postpone or stop work
• Force majeure

Note:
Additional costs and time are limited to the variations work.
Important Clauses in an EPC Contract
Performance Bond
A performance bond may be provided to protect the interests of the employer in
the event the contractor fails to comply with its obligations under the contract.
This is also applicable to EPC Contracts. Performance security may take the
following forms:

• Bank Guarantee;

• Parent Company Guarantee;

• Advance Payment Guarantee (if an advance payment is made by the

Employer); and/or

• Retention Security.
Important Clauses in an EPC Contract
Handover, Testing and Commissioning (HTC)

Handover, process of transferring ownership and control of the constructed facility from the Contractor to the Employer. The Contractor is required
to provide the Employer with all necessary documents, including as-built drawings, manuals, and operating instructions.
Testing, stage where the performance and functionality of the constructed facility are tested and verified. The results should be documented in
writing.
Commissioning, final stage in HTC, where the constructed facility is put into operation and handed over to the Employer.
Acceptance, after the HTC stages are completed, the Employer is required to formally accept the constructed facility. FIDIC Silver Book 2017 provides
for two types of acceptance:
• Provisional acceptance
• Final acceptance
Important Clauses in an EPC Contract
Usage and Ownership of the Works

FIDIC Silver Book 2017

• The employer has the right to use and

occupy the works once the contractor
has completed the project and the
taking-over certificate has been
issued
• The ownership of the works remains
with the contractor until the taking-
over certificate is issued. After the
taking-over certificate is issued, the
ownership of the work is transferred
to the employer. However, the
contractor retains ownership of the
contractor's equipment and
temporary works.
Important Clauses in an EPC Contract
Cap and Limitation of liability
FIDIC Silver Book 2017

Consequential Loss
Liquidated damages
Certain percentage for other liability
Insured Liability
Important Clauses in an EPC Contract
Dispute Resolution (FIDIC Silver Book 2017)
• The first step in resolving any dispute is to attempt to reach an amicable settlement.
• The parties are encouraged to try and resolve the dispute through negotiation or any other method of dispute
Ammicable resolution they may agree upon.
Settlement

Dispute
Adjudication
Board

• If the parties are dissatisfied with the decision of the DAB, they may refer the dispute to arbitration. The
arbitration process is conducted in accordance with the rules set out in the contract.
Arbitration • The arbitrators are appointed by the parties or by an appointing authority.
Important Clauses in an EPC Contract
Warranties by Contractor
Warranties and guarantees protect the owner against defects or issues that may arise after
the completion of the project. This section should specify the length and scope of any
warranties or guarantees provided by the contractor such as:

• Completion of work on the Operational Acceptance Date

• Meet good industry practice, workmanlike manner and specifications
• Fit for the purpose
• Every work completed is free from defects and/or negligence
• Comply with applicable laws and regulations for intellectual property rights
• Meet international standards
• The design will meet the criteria for a certain period of time
• Make payment of liquidated damages
Important Clauses in an EPC Contract
Governing Law & Contract Language

• Governing
Law
• Indonesian Law (Article 75 paragraph (1) GR 22/2020)

Bahasa Indonesia. (In the case where a contract involves international parties, it may be possible that there will
• Contract be a use of different languages. Accordingly, a language clause should be included in the contract and such a
Languange clause should also specify the prevailing version of the contract in the event there is a discrepancy or dispute.)
Alta Mahandara
Partner

Alta Mahandara is a qualified lawyer with over a decade of practice under his belt. He has
vast experience representing clients in diverse industries, including oil and gas, financial
services and insurance, property, environment, maritime and shipping, forestry and
plantations, and new and renewable energy projects. He is also recognized for his thorough
understanding of contracts and agreements such as sale and purchase, joint ventures,
facility/loan agreements, security, licensing, FIDIC, and power purchase agreements.
Prior to his current position at ADCO Law, he contributed to a prominent law firm in
Indonesia.
His clients appreciate his capability to provide a unique approach, support, and direction for
a variety of projects, as well as his expertise to simplify complex projects to be as simple as
possible.

E alta.mahandara@adcolaw.com T 0812-9694-4046
Thank you.
Any questions?