Management and performance of Engineering, Procurement, and Construction contracts (EPC) (part 1)

Engineering, Procurement and Construction contract (or EPC contract) is a type of contract for the engineering, procurement, and construction of the works, work items. General EPC contract is a type of contract for the engineering, procurement, and construction of all of the works of an investment project;

An EPC contract applies solely to construction projects and contract packages of which execution time is required to be shortened; or those with high requirements for engineering, technology, and the uniformity from the engineering design, procurement, construction phases to the training in commissioning and project transfer phases.

I. Legal basis governing EPC contract

Currently, construction contracts are mainly governed by the following legal documents:

–  Construction Law 2014;            

–  Decree No. 37/2015/ND-CP detailing construction contracts;            

–  Circular No. 07/2016/TT-BXD guiding adjustment of the construction contract price;            

– Circular No. 30/2016/TT-BXD guiding contract design – supply technology equipment and construction works.              

In which, Decree No. 37/2015/ND-CP, Circular No. 07/2016/TT-BXD, and Circular No. 30/2016/TT-BXD are only required to apply to construction investment projects of state agencies, political organizations, socio-political organizations, socio-political organizations – professional organizations, social organizations. society – profession, social organization, units of the people’s armed forces, public non-business units; State-owned enterprises’ construction investment projects; projects using state capital, capital of state-owned enterprises from 30% or more or less than 30% but over 500 billion VND in the total investment of the project. The other construction investment projects are not required but encouraged to apply such documents.

iI. Preparation and signing

During the contract preparation, signing, and performance, the Contractor is encouraged to propose initiatives, measures and apply its experience to complete the work specified in the EPC contract, ensure the safety, quality, schedule, objectives, requirements, and improve the effectiveness of the project/contract package.

1. Contents should be agreed before signing EPC contract

The parties shall, before the signing of EPC contract, at least reach an agreement on the following contents:

–  Estimated scope of work;

–  Location, routes, type, and level of facility; scope, capacity, and chosen procurement plan, use capacity;

–  Materials, and data on natural conditions, geotechnical engineering, hydrogeology, and hydrography of the area where the facility is built;

–  Requirements pertaining to construction engineering design and some initial design parameters;

–  Plans for technology, engineering, equipment, and commerce; the origin of equipment and products;

–  Plan for infrastructure connections within and beyond the scope of facility; fire prevention measures within the scope of EPC contract;

–  Construction-related measures, primary materials to be used;

–  Requirements pertaining to construction quality control, testing, commissioning, guarantees, and maintenance;

–  Solutions to architecture, ground, cross, and vertical section of the facility, sizes and main structure of the facility within the scope of EPC contract;

–  List and levels of standards, technical standards to be used in engineering, procurement, and construction;

– Technical instructions on supply and equipment, technical services;

– Requirements pertaining to qualifications of the Contractor in the contract package, including qualifications in engineering, procurement, and construction;

–  Requirements pertaining to environment protection, safety assurance, and fire prevention, and other issues.

–  Requirements pertaining to procedures for approval; numbers of documents and deadline for submission of these documents to the Employer;

– Schedule and milestones for completion of essential work and/or items and the whole facility to be put into operation and use;

– Allocate responsibilities between Employer and Contractor with respect to supply of electricity, water, communications, internal roads, and other available services in the facility, and processing of interface between contract packages within the same construction project.

2. Preparation

Terms, general and special conditions of the EPC contract must be prepared in conformity with guidelines prescribed in Article 18 of Circular No. 30/2016/TT-BXD.

3. Signing

– An EPC contract is signed only when all rules for signing of the construction contract prescribed in Article 4 of Decree No. 37/2015/ND-CP are satisfied.

– Requirements for the EPC Contractor:

The EPC Contractor must have obtained adequate operation and practice qualifications in accordance with law on construction investment, in particular:

+  Its registered lines of business are consistent with the work of the contract package. If the Contractor is a joint venture, a joint venture agreement is required, in which a JV’s Party acts as the head of the joint venture, takes general responsibility, and commits to undertake the tasks assigned by Contractors, and registered lines of business of each JV’s Party are consistent with the assigned tasks;

+  It has adequate qualifications to perform tasks specified in the EPC contract, namely: experience engineering; qualifications as building contractors of projects/contract packages with equivalent technical requirements and scope. In the organizational structure of the Contractor, there are units in charge of design consultancy, processing, and manufacturing, procurement and construction;

–  It satisfies financial requirements of the project/contract package and proves its capital mobilization to perform the EPC contract.

– The negotiation and signing of the EPC contract shall be carried out according to requirements in the Bidding Documents, Bids, approved results of bidder selection, or written direct contracting issued by competent authorities.

–  The schedule of negotiation and signing of the contract must be consistent with the general schedule and ensure the effectiveness of the project.

iiI. Performance management

The performance of EPC contract shall be managed in accordance with Article 7 of Decree No. 37/2015/ND-CP and the following regulations:

– Manage scope of the work according to objectives of the contract package and list of tasks specified in the contract; inspect whether documents on survey and engineering have applied to the tasks of EPC contract with accuracy, adequacy, and conformity.

–  Manage the schedule of tasks in conformity with the general schedule of the project and the EPC contract.

–  Inspect and manage the quality and quantity of tasks to be performed in the EPC contract.

–  Manage expenses associated with tasks in the EPC contract; control, pay, and adjust the EPC prices.

–  Manage safety, fire prevention, and environmental hygiene;

–  Manage the adjustments to the EPC contract and its other necessary contents.

See more issues related to construction contracts:

Types of construction contracts;

A number of fundamental issues about construction contracts (part 1);

A number of fundamental issues about construction contracts (part 2);