Split contracts are historically deployed in large epc engineering, procurement and construction contracts because the large sums involved and the extent to which specialised equipment is exported, or services rendered offshore, lend themselves to a split contract structure. Epc, split epc and multiparty contract projects lexis. Typically, to achieve tax efficiency, the split contract structure is preferred over turnkey contract due to the certainty of a tax impact, to remove cascading effect of. Under an epcc contract a contractor is obliged to deliver a complete facility to a developer who need only turn a key to start operating the facility, hence epcc contracts. While technical and commercial factors play a significant role in identifying the appropriate structure, the importance of taxation in an epc contract cannot be undermined. The epc contract constitutes a large portion of the. The basic concept is that in a turnkey contract the contractor shall provide the works ready for use at the agreed price and by a fixed date. A comparison of epc and epcm contracting and the key risk mitigation measures. The epcm contractors engagement may start as early as the feasibility stage of the project. Application of epc contracts in international power projects article pdf available in procedia engineering 123. Part 3 interplay between construction contracts and finance and security documents in project financing.
For more information on epc contracts see practice notes. This approach is sometimes used the in context of energy projects. One innovation that is becoming more prevalent in infrastructure project financing in asia. The split structure is designed to reduce exposure to local taxes on offshore equipment, or any design work performed outside the host country, becoming. For more information, see practice note, procurement route. This edition captures the latest tax and regulatory changes that have occurred in the oil and gas industry during the past year, including our early views on the new gross split pscs. Basic understanding of an epc contract caclubindia.
Welcome to the 9 th edition of the pwc indonesia oil and gas in indonesia investment and taxation guide. Epc, split epc and multiparty contract projects practice notes. Free practical law trialto access this resource, sign up for a free trial of practical law. Successfully resolving disputes under epc contracts, including international arbitration and other forms of dispute. Epc contractors usually require limits to be placed on their overall liability 100% of the epc contract price being the starting position, and. Split contracts themselves are common in purchases from developers in new estates or where developers are subdividing larger residential blocks. This paper will only focus on the use of epc contracts in the power sector. Split contracts are historically deployed in large epc engineering, procurement and construction contracts because the large sums involved. Registration and continental breakfast picasso 2 9. These delivery methods were, and remain, popular with owners and financiers as the fixed time and cost arrangement provides certainty and, for epc contracts, a single source of responsibility. Epc contract dilemma of turnkey visavis split contract. Split epc contracts are where the employer splits the epc into two or more separate contracts.
A form of building contract used for a large or otherwise complex project under which the builder the epc contractor will deliver a completed project on a turnkey basis. Splitting epc contracts will not be appropriate for every project. An issue that arose in a recent reported case, highlights the risk of split epc contracts. Effectively, an epc contract usually specifies that the project be delivered on a turnkey basis. Under an epc contract the contractor is responsible for the delivery of the total project including the design, engineering, procurement of the materials, construction and testing of the mechanical elements. The classic split a diagrammatic representation of a standard split contract structure is set out below fig. Split structure of contract onshore and offshore is also dealt in the study with taxation regimes. Administering epc contracts part 1 construction contract administration. For major projects it is not unusual to split the project delivery process into two phases.
The challenges arise when components of the epc contract are clubbed or when one component in the epc is split. Engineering, procurement and construction epc projects. Pdf epc contracts in the oil and gas sector epc contracts. Engineering, procurement, construction and commissioning epcc contracts are the most common form of contract used to undertake construction works by the private sector on largescale and complex infrastructure projects. The epc contract is split into a separate offshore and onshore contract with different contractor corporate entities. The split structure is designed to avoid or reduce the profit element of any equipment supplied from outside the host country, or any design work performed outside the host country, becoming subject to local taxes. Such contracts may, either be a composite contract i. A material default under any epc contract has occurred and been continuing for more than 90 days.
The facts of this case are that mobil awarded two contracts for the. Epc, split epc and multiparty contract projects legal. Epc contractors usually require limits to be placed on their overall liability 100% of the epc contract price being the starting position, and on their liability for delay damages 10% is not uncommon. Does the force majeure provision in other related contracts dovetail. Ipp project split epc contracts two separate epc contracts for one power project onshore civil works, labor, etc. Derive a matrix of spacial subdivisions crossed with. Epc, split epc and multiparty contract projects legal guidance. Split epc contracts posted on may 6, 2017 by francesco miceli as you probably will be aware of if you are reading this blog, an epc is a typology of contract where a company agree to develop the engineering, procurement and construction of a facility. See, for example, nick henchie fidic conditions of contract for epc. As you probably will be aware of if you are reading this blog, an epc is a typology of contract where a company agree to develop the engineering, procurement and construction of a facility in this blog, a wind farm for a fixed, lump sum amount. It is not unusual to have the engineering arrangements split into a number of components. If the main purpose of the split is to access foreign currency.
Epc contract legal definition of epc contract by law insider. The second reason is that the offshore entity wishes to repatriate the contracts revenues tying to its functions through a. Epc contracts for domestic and international projects epc contract risk management. However, the majority of the issues raised are applicable to. Sep 14, 2006 epc contracts for domestic and international projects epc contract risk management.
Engineering, procurement and construction epc contracts. Epc contracts in the renewable energy sector south african re ipp programme lessons learned from phases 1 and 2 october 2012 the amount of power a wind generator can produce is dependent on wind availability and speed. Where project works include a significant crossborder element it has become common practice for the construction documentation to be split between two or more contracts in order to reduce local tax liabilities. Discussion on split epc contracts, epcm contracts and multi prime part 1 epcm contracting part 2 case study on epcm model. The challenges arise when components of the epc contract. Engineering, procurement, and construction wikipedia. Epc contracts key issues to consider ran chakrabarti partner may 2018. Appropriate local taxation advice and legal advice should always be sought before deciding whether to split the epc contract into two or more contracts to take advantage of taxation savings and other commercial benefits. The new standard form of construction contract produced by the well respected international federation of consulting engineers aims to provide a fair risk. Pdf evaluation and application of epc model to improve project. Epc contract is an abbreviation for engineering, procurement and construction contract.
The classes of taxes, both direct and indirect, that an epc contract or and a project company may be. A comparison of epc and epcm contracting and the key risk. In short, an epc contract is a design and construct contract where a. The epc contract is the most common method of procurement for uk energy, largescale and complex infrastructure projects. Gulf construction online key issues in split epc contracts. This form of contract sets out the relationship between the principal or owner owner and the contractor contractor for the provision of professional or technical services in connection. Epc, split epc and multiparty contract projects lexispsl.
The new fidic epc bot contract published in project finance. Financial risks and bankability in epc contracts iosr journal. In short, an epc contract is a design and construct contract where a single contractor takes. Epc and epcm contracts where do they fit in the risk continuum. Splitting epc contracts in energy projects lexology. Splitting epc contracts for tax savings pinsent masons. Some key sectors that have opened up to private players are airports, railways, waterways, roadways particularly highway projects and power projects. Introduction to epc contracts, epc contractshandover, testing and commissioning and epc contractslimits of liability.
As you probably will be aware of if you are reading this blog, an epc is a typology of contract where a company agree to develop the. Click here to view or print the fullsize pdf version. Under a split epc structure, there are typically two contractors for carrying out the epc obligations. A turnkey contract is one under which the contractor is responsible for both the design and construction of a facility. However, the majority of the issues raised are applicable to epc contracts used in all sectors. The new fidic epc bot contract published in project.
An epc contract generally involves supply of goods and services, both offshore and onshore. Discussion on split epc contracts, epcm contracts v do rw u the split epc contract strategy key commercial drivers current market practice and risks associated with the split epc model epcm contracts key issues and market practice managing an epcm contractor multiprime contracts and delivery of major projects structuring multi. Oct 02, 2018 the parties will enter into an umbrella agreement in an attempt to get the risk profile of the split contracts as close as possible to a single epc contract. Epc contractsoverview lexispsl, practical guidance for lawyers. The parties will enter into an umbrella agreement in an attempt to get the risk profile of the split contracts as close as possible to a single epc contract. Study of individual components of epc when viewed on a standalone basis does not throw up any unique challenges from an incometax standpoint. Structuring of epc contracts tax and other issues 2. Engineering, procurement and construction epc management. Risk allocation and bankability in construction projects pec. Pdf application of epc contracts in international power. Offshore equipment supply and engineering driven by local tax issues. Delay liquidated damages may be levied against the contractor.
The key driver for adopting a split structure is also the tax efficacy considering all financial risks as well. The term capacity factor is used to describe the actual output of a. May 06, 2017 split epc contracts posted on may 6, 2017 by francesco miceli as you probably will be aware of if you are reading this blog, an epc is a typology of contract where a company agree to develop the engineering, procurement and construction of a facility in this blog, a wind farm for a fixed, lump sum amount. International engineering, procurement and construction contracts epc contracts are. Ideally a project company and an epc contractor would reach agreement on the terms of the single epc contract and scope of work and then the arrangements split into onshore and offshore components.
Epc proceduralized coordination materials management is the key parse project in 3d space as well as by material commodity types. Epc contracts the indian government has taken measures to fill the gaps in the infrastructure needs of indian businesses, resulting in various publicprivate partnerships as well as privatisation. Draft epc contract draft epc contract aug 2018 hutti gold mines company limited a government of karnataka enterprises iiird floor, khb complex, national games village, koramangala, bengaluru 47 tel. Epc contractsoverview lexispsl, practical guidance for. In case its not possible, exceeding budget and deadlines is very likely. The first reason of the split of epc contracts is that the resources relating to the services are usually located abroad in the state of the offshore entity. This is the reason your property is dependent on the completion of the entire project. Structuring of epc contracts tax and other issues ca h. Pdf sample epc contract g madan mohan reddy academia. Under an epcc contract a contractor is obliged to deliver a complete facility to a developer who need only turn a key to. Managing and negotiating engineering, procurement and. This approach is sometimes used the in context of energy. As a result, the scope of works will be split between the contractors, and there is, therefore, a risk of gaps between the scopes set out in the separate contracts and the overall scope of the project.