ABSTRACT
In comparison to the EPC contractor, as was explained in Chapter 10, the owner will have relatively few obligations under the EPC contract. The owner’s primary obligation will be to make payments to the EPC contractor as the EPC contractor completes different stages of the work, generally referred to as “milestones.” Other obligations of the owner usually relate to furnishing permits and interconnections for utilities, such as fuel and telecommunications, on a timely basis so that the EPC contractor’s work is not delayed. Often, however, the owner’s payment of additional money to the EPC contractor can compensate the EPC contractor for any delays that increase the EPC contractor’s costs, such as re-mobilization costs for idled craft labor and rented equipment. In the case of long delays, however, the owner may not be able to keep the EPC contractor economically whole, to the extent that the EPC contractor incurs an opportunity cost in tying up its own personnel who could be expending their efforts and energy on one of the EPC contractor’s other projects. This often becomes an issue if the EPC contractor is using its own engineering manpower because these personnel could be assigned to another project instead of being held idle so they can be available promptly if the owner’s delays cease. Generally, the EPC contractor will not have the same problem with construction labor crews. They will usually be employees of one of the EPC contractor’s subcontractors. (EPC contractors usually do not have large contingents of trade labor but often have field supervisors on their own payroll who rotate from project to project for the EPC contractor to supervise subcontractors’ crews and work.)
Recognizing that the impact of delay of the EPC contractor’s work can be fairly easily quantified and rectified, it is to the owner’s advantage to set up the EPC contract so that any delays or disruptions caused by the owner will entitle the EPC contractor to an equitable adjustment but no other remedy (such as damages). Thus, a change order granting the EPC contractor an extension of the schedule and compensating the EPC contractor for its incremental costs would be given by the owner but no default or breach of the EPC contract by the owner would be deemed to have occurred as the result of a delay caused by the owner. Naturally, the EPC contractor should be entitled to stop work if the owner does not stay current on its payments of the EPC contract price. It is reasonable to categorize the owner’s failure to make timely payment as a default under the EPC contract. Consequently, so long as the owner is current in payments to the EPC contractor, any additional costs that the EPC contractor incurs as a result of delays caused by the owner can be compensated
equitably by means of an equitable adjustment and, thus, there need be no owner default triggered under the EPC contract’s provisions.
