ABSTRACT
Even with this high level of risk, EPC contractors generally do not set up special purpose subsidiaries for each “job” or EPC contract that they perform. Often, EPC contractors are not publicly held companies but are “closely held” companies whose stock is owned by a few individuals and not listed for trading on any stock exchange or automated quotation system. Large EPC contractors will often have many operating subsidiaries, each of which performs different functions or operates in particular geographic regions. It is important for the sponsor to understand which of the EPC contractor’s subsidiaries will sign the EPC contract and whether that subsidiary can operate on its own and independently from its parent entity should its parent entity run into a cash flow problem (or worse, bankruptcy). Under legal principles in most U.S. jurisdictions, parent companies are not liable or responsible in any way for the debts or obligations of their subsidiaries unless they so agree in writing or have acted with fraudulent intentions. This is true even if the parent entity has received a benefit from its subsidiary’s entering into the EPC contract.2 In order to avoid the unfortunate consequence of contracting with a subsidiary that does not have the technical expertise and financial stability to perform its contract, an unconditional guaranty of performance of the subsidiary is typically obtained from its ultimate parent (as will be discussed in Chapter 19).
