Understanding and Negotiating Epc Contracts, Volume 1: The Project Sponsor’s Perspective PDF
Preview Understanding and Negotiating Epc Contracts, Volume 1: The Project Sponsor’s Perspective
Understanding and Negotiating EPC Contracts Volume 1 In Understanding and Negotiating EPC Contracts, Volume 1, Howard M. Steinberg presents a practical and comprehensive guide to understanding virtually every aspect of engineering, procurement and construction (EPC) contracts for infrastructure projects. The 25 chapters in Volume 1 are supplemented with real-life examples and court decisions, and offer tactical advice for anyone who must negotiate or understand EPC contracts in connection with the implementation, financing or operation of infrastructure projects. Emphasizing current market practices and strategic options for risk sharing, the book contains a narrative explanation of the underpinning of all of the issues involved in EPC contracting. Exhaustive in scope, it clarifies the fundamental commercial principles and pitfalls of “turnkey” contracting for all types of capital investments ranging from electrical and thermal power generation (including combined heat and power, nuclear, wind, solar, natural gas and coal) to refining, to chemical processing, LNG liquefaction and re- gasification, to high speed rail, bridging, tunneling and road building. Providing clear and thorough analyses of the issues and challenges, this volume will be of great value to all those involved in complex construction projects. Howard M. Steinberg is of counsel and a retired partner in the law firm Shearman & Sterling LLP and has more than 25 years of legal experience in the infrastructure sector in more than 100 countries. He is named a leading lawyer in project finance by Chambers & Partners and IFLR 1000. He represents sponsors, offtakers, miners, suppliers, engineering firms, consultants, financial advisors, contractors, operators, underwriters, lenders, export credit agencies and multi-lateral institutions in the development, acquisition, restructuring and privatization of projects around the world. He holds bachelor’s and business degrees from Columbia University and a law degree from New York University. 2 Every lawyer involved in project finance should read this book! Oscar Frota, Senior Legal Counsel, GDF Suez Energy Latin America From the finance side, before we can even look at the economics of a project, we need to know that its contractual structure is sound. This book is a must for any serious banker. Edmundo Lujan, Executive Director, Project Finance Latin America, Banco Bilbao Vizcaya Argentina S.A. (BBVA) There would be a lot less restructuring work if a proper risk allocation had been put in place since inception. This book provides a must-read guide to project parties to achieve that goal. Jean-Valery Patin, Managing Director and Head of Project Finance Latin America, BNP Paribas It’s truly astounding how much money companies will spend only to learn they do not have a project that can be financed. This book should be the first investment for any project. Halil Sunar, Director of Power for Turkey, State Oil Company of Azerbaijan (SOCAR) Financing projects is all about understanding the risks. Anyone who hasn't read this book is just giving himself an unnecessary handicap. Natasha Kirby, Associate Director, Strategic Energy Solutions Group, HSBC 3 Understanding and Negotiating EPC Contracts Volume 1 The Project Sponsor’s Perspective Howard M. Steinberg 4 First published 2017 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2017 Howard M. Steinberg The right of Howard M. Steinberg to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Steinberg, Howard M. author. Understanding and negotiating EPC contracts / by Howard M. Steinberg. pages cm Includes bibliographical references and index. ISBN 978-1-4724-1106-8 (hardback) 1. Construction contracts–United States. 2. Construction industry–Law and legislation–United States. I. Title. KF902.S74 2014 343.7307′862131–dc23 ISBN: 9781472411068 (hbk) ISBN: 9781315549309 (ebk) Typeset in Baskerville by Out of House Publishing 5 Contents Volume 1 List of Figures Reader’s Note Foreword About the Author Introduction 1 A Historical Perspective Varying Construction Approaches in the U.S. Power Industry The EPC Approach Emerges The Collapse of the U.S. Power Industry 2 Choosing a Development Approach Concessions Build and Transfer (BT) Build, Transfer and Operate (BTO) Build, Own, Operate and Transfer (BOOT) Build, Own and Operate (BOO) Public-Private Partnerships (PPP) Privatizations Legal Regimes—Civil Codes vs. Case Law Approaches Choosing a Legal Entity General Partnerships Limited Partnerships LLPs and PCs Corporations Limited Liability Companies Forming the Project Entity SPVs Development Partners An Integrated Structure 6 3 The EPC Contractor’s Approach Consortia The EPC “Wrap” On-shore/Off-shore Issues and Coordination Agreements EPCM 4 Beginning the Evaluation Process The Financial Model Financing Coverage Ratios Lenders’ “Step-In” Rights Financing Agreements Bank Financing Construction and Term Loans Public Market Functional Analysis Approaching EPC Contractors Formal Bid Solicitations Sole Source, “Open Book” Negotiations Focusing the EPC Contractor’s Attention Communicating with the EPC Contractor and the Attorney/Client Privilege 5 Full-Scale Development The Development Timeline The Environmental Impact Study The Contractual Negotiation and Permitting Phase Notice to Proceed Limited Notice to Proceed 6 Philosophy of the EPC Contract Intent Quasi-Contract Parole (Oral) Evidence Additional Terms Prudent Practices “Best” Efforts and “Commercially Reasonable” Efforts “Good Faith” and “Good Intentions” 7 Subcontractors Terms Contained in Subcontracts Third-Party Beneficiaries 7 8 Site or Route Survey Hazardous Materials Legal Control over the Site 9 The Work The Functional Specification Contractual Provisions The EPC Contractor’s Obligations during the Design Phase Professional Engineering Quality Control The EPC Contractor’s Obligations during the Construction Phase Health and Safety Supervision Project and Construction Managers Union Labor Security and Surveillance Minimization of Disruptions in Surrounding Areas Coordination with Other Contractors Site or Route Shipping and Delivery Schedules Sourcing of Equipment The EPC Contractor’s Training Obligations during Commissioning Establishing the Framework 10 The Sponsor’s Obligations under the EPC Contract Assumption of Responsibility Owner Furnished Equipment Refurbished Equipment Technology Licenses 11 Monitoring the Progress of the Work Developing the Baseline Project Schedule Schedule Updates and Progress Reports Rights of Inspection Engineering and Design Phase Manufacturing and Fabrication Phase Witness Points vs. Hold Points Field Construction Project Accounting and Audit The “Owner’s Engineer” The “Independent Engineer” or “Lender’s Engineer” 8 12 Unforeseen Circumstances, Adjustments and Change Orders Force Majeure Risk of Loss Builder’s All Risk Insurance to Cover Risk of Loss Equitable Adjustments Equitable Price Adjustments Equitable Time Adjustments Float Change Orders Directed Changes Constructive Changes Cardinal Changes and Contractual Abandonment Cumulative Impact Changes 13 The EPC Contractor’s Failure to Perform The Concept of Default Remedies at Law vs. Remedies in Equity Adequate Assurance The Owner’s Remedies Exclusivity of Remedies Engineering Difficulties Construction Difficulties Financial Difficulties U.S. Bankruptcy Example Procedural and Substantive Consolidation of Cases Rejection of Contracts The Slide Toward Insolvency Subcontractor Difficulties The Owner’s Options 14 The Owner’s Failure to Discharge Its Responsibilities “No Damages for Delay” Provisions Active Interference and Loss of Efficiency 15 Unexpected Market Conditions The Owner’s Right to Suspend or Terminate Work 16 Testing and Completion of the Work Mechanical Completion Startup and Commissioning The Punch List 9 Output During Commissioning Performance Testing Unit Testing Power Plant Degradation Performance Curves Test Measurement Locations Extrapolation Offtaker or Facility User Requirements Correction Curves Deemed Acceptance Reliability Testing Ambient Air Temperature Performance Tests for Offtakers and Lenders “Inside-the-Fence” Offtakers Merchant Power Facilities Substantial Completion or Provisional Acceptance Final Acceptance Early Operation Operating Revenues during the “Early” Operation Period 17 Liquidated Damages for Delay and Impaired Performance Liquidated Damages for the EPC Contractor’s Failure to Achieve Substantial Completion or Provisional Acceptance on Time Early Completion Bonuses Liquidated Damages for Impaired Performance Output Efficiency Availability Emissions “Double Counting” “Caps” on Liquidated Damages for Delay and Poor Performance “Subcaps” 18 The EPC Contractor’s Warranties of the Work Hidden or Latent Defects Subcontractor Warranties Superior Vendor Warranties “Pre-Ordered” Equipment “Serial” Defects Locating Defects and Deficiencies Remedies for Breach of General Warranty Scheduling of Warranty Work 10
The list of books you might like
