Engineering, procurement, and construction (EPC) contract is a comprehensive framework for a contract in which the contractor is required to accomplish a specified scope of work by a specified completion date in exchange for a specified lump-sum contract fee. The primary goal of EPC contracts is to minimize cross-claims from other contractors and restrict responsibility for the completion of the works to the main contractor.
In the United Arab Emirates (UAE), EPC contracts are frequently employed in challenging construction projects, particularly projects involving public-private partnerships. They are increasingly subject to regional laws and rules. Contractors should be aware of required legal requirements, such as the enforcement of notice periods, liquidated damages (LDs), the issue of access licenses, labor laws, and health, safety, and environmental standards.
Most EPC contracts are written and signed in English in the UAE. Nevertheless, it is common to employ bilingual contracts, mainly when working with governmental and semi-public organizations. It is undoubtedly desirable to steer clear of dual language contracts to prevent linguistic inconsistencies, particularly given the technical terminologies frequently used in EPC contracts.
Scope of work of Contracts
Even though the tasks aren’t explicitly listed, EPC contracts mandate that the contractor do all “essential” duties. Any modification order or variation will likely alter the project’s scope, inviting the contractor and the employer to agree on its specifics in exchange for a predetermined fee. EPC contracts frequently provide that the contract price may be raised or additional costs may be recouped through a change order or variation if there is:
- a change in law that adversely affects the contractor’s costs of performance and/or its ability to perform the work according to the agreed schedule;
- an act or omission by the employer that adversely affects the contractor’s costs of performance;
- a change in the scope of work; or
- a specific force majeure event.
The contractor will request an extension of the agreed timetable or an Extension of Time if they believe an external reason will require them to take longer than expected to finish the works (EOT). The EPC contract frequently provides a framework for variations and EOT. A contractor is typically subject to a rigorous deadline for claiming interpretation or EOT under this system, which often contains time restrictions.
Jurisdiction
As time-bar regulations are not always fully enforced in all jurisdictions, contractors should constantly be aware of the one in which they operate. Courts may take a more lenient application of time constraints in a jurisdiction like the UAE, where the idea of fairness and good faith are deeply ingrained. This will depend on the facts and specifics of the case.
However, contractors should make an effort to meet deadlines or provide a reasonable explanation if they are unable to do so (which excuse might be unawareness of the event causing the variation or delay). Variations and EOT claims frequently stem from an imprecise or incomplete design, with “design creep” frequently expanding the scope of the contractor’s work. It’s always a good idea to begin a project with a clear, documented design.
Importance of risk allocation
A construction project entails a lot of hazards. For instance, the project could be delayed, fall short of expectations, or cost more than expected. The fundamental principle of risk allocation states that the party with the best ability to handle the risk at the lowest possible cost should take on that risk. Since the contractor has been hired to deliver a facility following the employer’s standards, EPC contracts keep the risk with the contractor rather than the employer. However, when geotechnical surveys are impossible, not all risks are taken on by the contractor, such as those associated with the site.
Dispute resolution
It is occasionally possible for both parties to choose to obtain advice from a neutral, impartial third party expert. If the parties are unable to come to an agreement over the identity of an expert, the International Chamber of Commerce (ICC) is frequently cited as an appointing body. When a disagreement involves the resolution of technical issues, as opposed to the legal or factual component of a particular claim, it is typical to rely on third-party expert determination.
Parties will use arbitration if an expert determination is deemed insufficient for a conclusive and binding dispute resolution process. EPC contracts frequently contain dispute resolution clauses in the UAE that call for arbitration by the ICC Rules or at one of the country’s renowned arbitration institutions, like the Dubai International Financial Centre-London Court of International Arbitration (DIFC-LCIA) or the Dubai International Arbitration Centre (DIAC).
The UAE passed a new federal arbitration law in June 2018, making it more desirable for contractors and owners to choose the UAE as the “seat” of arbitration. This is because:
- The procedure for enforcing arbitration awards before UAE courts has been more straightforward and shorter.
- The law now offers a framework that is more favorable to arbitration.
- The earlier grounds for annulling arbitration awards have undergone significant revisions and are now more consistent with international standards and best practices.
Why do you need a Lawyer?
It is crucial to seek legal advice before entering into any type of contract in the UAE. It is particularly recommended to seek advice on UAE imperative laws and laws of public order applicable to EPC contracts, even where the contract is governed by a foreign law but has a nexus to the UAE.
Parties should make sure to:
- Investigate the place and means for achieving successful enforcement of the EPC contract when agreeing on applicable law and dispute resolution clauses.
- Conduct commercial and technical due diligence before pricing and committing to a delivery date.
- Keep a complete and contemporaneous record of the facts that can have an impact on their legal and contractual rights.
- Comply with the contractual provisions.
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