What are the Employer’s Risks under the EPC Contract in common?

Under an Engineering, Procurement, and Construction (EPC) contract, the employer, or client, typically transfers a significant portion of project risk to the contractor. However, there are still certain risks that the employer retains. Here are some common risks that an employer may face under an EPC contract:

  1. Design Risk: The employer retains the risk associated with the design of the project. If the design proves to be inadequate or flawed, it can lead to delays, cost overruns, or deficiencies in the final project.
  2. Financial Risk: The employer may face financial risks related to the project. This could include the risk of cost overruns, poor project budgeting, or inadequate financial planning.
  3. Schedule Risk: While the contractor is responsible for project execution and meeting the agreed-upon schedule, the employer may still face schedule-related risks. Delays in obtaining permits, approvals, or other external factors beyond the contractor’s control could impact the project schedule.
  4. Force Majeure Events: Force majeure events, such as natural disasters, political instability, or labor strikes, are typically borne by the employer under an EPC contract. These events can cause delays, interruptions, or additional costs for the project.
  5. Change in Scope: If the employer requests changes to the project scope or specifications, it can introduce risks. These risks include potential delays, cost increases, or impacts on the overall project quality.
  6. Performance Risk: The employer may face risks related to the performance of the completed project. This could include defects, deficiencies, or non-compliance with specified standards or requirements.

It’s important to note that the allocation of risks can vary depending on the specific terms and conditions of the EPC contract. The contract should clearly define the risks allocated to each party and the mechanisms for managing and mitigating those risks. It is advisable for employers to carefully review and negotiate the terms of an EPC contract to ensure that their specific risks and interests are adequately addressed.