Top Ways for an EPC Contractor to Get Into Trouble

 

Top Ways for an EPC Contractor to Get Into Trouble

 

 

 

 

 

 

 

 

 

 

 

 

EPC Contractors Risk Factors:

  • Geographical Area & the EPC contractor Project Size
  • Contracting Parties & Type of Work for EPC contractor
  • Incomplete and Unbalanced Contract for EPC contractor
  • Project Management Failures of EPC contractor

 

Bidding a project in a geographical area without knowledge of all operational parameters by EPC contractor

 

Key Risk Elements:

  • Environmental conditions
  • National and local laws and regulations
  • Labor market
  • Social customs
  • License requirements
  • Supplier availability
  • Security considerations
  • Agency requirements and relations
  • Customs and importing requirements
  • Taxation

 

Taking on a project which substantially exceeds the typical project value/size by EPC contractor

 

Key Risk Elements:

  • Insufficient labor resources, equipment, and material
  • Risks that could jeopardize the EPC contractor company
  • Dilution of management attention
  • Inability to fund such a large project by EPC contractor
  • Cash flow restrictions

 

EPC contractor Contracting with a party who is financially or politically unstable

 

Key Risk Elements:

  • Payment risk
  • Risk of bankruptcy or restricted cash flow
  • Delays in committing funds for the project performed by EPC contractor

 

Executing a contract by EPC contractor for a type of work not previously performed by EPC contractor

 

Key Risk Elements:

  • EPC contractor Unfamiliar with design, codes, standards, and construction requirements
  • EPC contractor Unfamiliar with required subcontractors and vendors
  • Lack of EPC contractor awareness of industry norms, practices, and standards of care

 

Signing a contract by EPC contractor with an incomplete project definition, incomplete work scope, or ill-defined performance requirements

 

Key Risk Elements:

  • Uncontrollable work scope expansion
  • Unknown cost exposure
  • Inability to schedule project work accurately by EPC contractor
  • Unclear EPC contractor project completion milestones

 

Signing unbalanced contracts by EPC contractor, that place too much risk on one party

 

Key Risk Elements:

  • Disproportionate split of risk and reward benefits
  • Roles and responsibilities of EPC contractor an the other party are unclear, subject to misunderstanding, and unenforceable

 

Allowing the EPC contractor project management team to deviate from the requirements of the contract

 

Key Risk Elements:

  • Favorable contract provisions are waived
  • EPC contractor's and other parties' actions become the contract standard
  • Potential loss of EPC contractor rights under the contract
  • Risk of owner claims for mismanagement of EPC contractor

 

Failing to recognize changes to the contract which have an adverse impact on EPC contractor’s operations

 

Key Risk Elements:

  • Waiving rights to claim for changes if not documented
  • Risk of performing work by EPC contractor without approval or additional compensation
  • Unfunded changed work – cash flow issues
  • Bonds/Insurance response

 

Failing to document problems, delays, disruptions, and disagreements by EPC contractor

 

Key Risk Elements:

  • Inability to substantiate change order requests to EPC contractor or claims for additional compensation
  • EPC contractor Exposure to claims or legal action from the owner
  • EPC contractor Exposure to claims or legal action from subcontractors or vendors
  • Waiving of contractual rights
  • Acceptance of adverse position

 

EPC contractor Failing to address at an early stage changes and disruptions in the work

 

Key Risk Elements:

  • EPC contractor inablity to mitigate costs and delays
  • Undocumented changes by EPC contractor
  • Payment risk due to undocumented changes
  • EPC contractor's Failure to modify behavior of party
  • Tacit acceptance of adverse position

 

EPC contractor Failing to have well-defined changes and dispute resolution provisions

 

Key Risk Elements:

  • Subjection of EPC contractor to foreign or adverse legal forums
  • Problematic arbitration provisions
  • EPC contractor Inability to manage change during project
  • Monetary exposure for inability to properly
  • substantiate change provisions

 

Source: Rice Global E&C (Engineering and Construction) Forum