Weathering the Storm: EOT, Extra Costs, and Force Majeure in EPC Contracts
Construction projects are rarely immune to unforeseen delays and disruptions. A well-drafted Engineering, Procurement,and Construction (EPC) contract mitigates these risks through provisions for Extensions of Time (EOT), Extra Costs, and Force Majeure.
Owner’s Risks:
- The contract should protect contractors from delays or additional costs due to events beyond their control, like owner-initiated scope changes, permitting delays, or regulatory shifts. These provisions allow for EOT claims, adjusting the completion date without penalty, and claims for extra costs incurred.
Force Majeure:
- This clause excuses a party from contractual obligations due to unforeseen events outside their control. A clear definition is crucial, often including natural disasters, wars, strikes, and government actions. During such events, the affected party is typically relieved from performance and non-performance liability, with relief proportional to the impact.
Key Considerations:
- Specificity: A comprehensive list of Force Majeure events minimizes disputes.
- Proportional Relief: Relief should reflect the time needed to overcome the event’s impact, not just the event duration itself.
- Notice and Documentation: The contract should specify time frames for notifying the other party and the type of documentation required to substantiate claims.
By incorporating these provisions, EPC contracts establish clear expectations for both parties in the face of disruptions.This allows for a fair allocation of risks and ensures the project can adapt to extraordinary events without undue burden on either side.
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