turnkey contracts

Engineering procurement and construction contract

Engineering, procurement, and construction (EPC) contracts, sometimes called turnkey contracts are similar to design and build contracts, in that there is a single contract for the design and construction of the project, but generally with an EPC contract, the client has less say over the design of the project and the contractor takes more risk.

On a design and build project, the client may produce an outline design upon which tendersare sought. On an EPC project, the client may seek tenders based on a performance specification and then have no input into the design, other than if variations are instructed.

Payment can be on a lump sum, cost reimbursable basis, or some other basis, but generally the client would be likely to seek a fixed price, lump sum agreement where the responsibility for cost control is taken by the contractor. This gives the client a relatively risk-free arrangement, with one point of responsibility and cost certainty. They can therefore operate the contract with the minimum resource.

The clients main risk lies in the definition of the specification upon which the contract is based. If the specification is not well developed and concise otherwise the quality and performance of the completed development may be compromised (see performance specification and output-based specification for more information)

Generally, EPC contracts are used on engineering and infrastructure projects, or industrial projects, where the aesthetics of design might be considered less important to the client than performance and cost certainty.

The FIDIC Conditions of Contract for EPC Turnkey Projects (The Silver Book) is an example of an engineering procurement and construction contract.