EPC

EPC is an international form of construction and engineering contracts. The contract is used when customers want to engage contractors to undertake the entire scope of works. 

Contractors do the works for a flat fee on their own, there is no special fee for project management. EPC contracts are characterized by: 

• a firm price, which in most cases is lump-sum, that is fixed,
• the high limit of the contractor's liability, which in most cases is limited within the contract price, 
• the contractor has greater independence, and the customer has a minimum of powers on the management of an EPC contractor or subcontractors, 
• most of the risks under the contract, including the risks of unforeseen costs and delays, are the responsibility of the contractor. 

The EPC contract is often used in cases when the customer does not have its own service capable of project management, therefore does not interfere with the latter and assumes the appropriate risks, EPC is one of the main contractual forms in projects financed by banks, as banks, providing a loan, tend to ensure that the borrower takes on as little risk as possible. EPC-contracts are used, as a rule, in those projects where an experienced contractor can estimate the amount of its expenses with a sufficient degree of accuracy, as well as the degree of risks. 

Typically, contractors are reluctant to enter into EPC contracts. This is due to the following: 

• non-standard projects and the complexity of the conditions in which they will be delivered, uncertainty in the scope and / or composition of works, implementation of projects by international contractors in developing countries, 
• problems in developing a competitive market for construction materials, labor market difficulties (lack of trained professionals), 
• underdevelopment of the local market for construction and installation companies and their low qualifications, which makes it difficult to attract subcontractors. 

In these cases, general contractor does not want to bear all the project risks, including those associated with possible violation by subcontractors of their obligations, and also to be fully accountable to the customer, given that the general contractor's remuneration itself usually amounts to 10-15% of the total contract price.