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Engineering, Procurement, and Construction Contract (EPC)

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Definition:
A turnkey contract where a single entity is responsible for designing, procuring materials, and constructing the project, delivering a fully operational facility.

Key Components:

  • Single-Point Accountability: One contractor oversees all aspects of execution.
  • Fixed Completion Timeline: Contract stipulates milestones and delivery dates.
  • Performance Guarantees: Often includes penalties for delays or performance shortfalls.

Use Cases/Industries:

  • Oil & Gas Facilities: LNG terminals, refineries.
  • Renewable Energy Plants: Solar farms, offshore wind projects.

Advantages:

  • Minimized Owner Risk: The EPC contractor assumes cost and schedule risks.
  • Streamlined Execution: Integrated approach reduces coordination complexities.

Challenges:

  • Higher Cost Premium: EPC contracts may include risk contingencies in pricing.
  • Limited Owner Control: Design and construction decisions are primarily contractor-driven.

Related Terms:
Lump Sum Turnkey (LSTK), Design-Build (DB) Contract

Example:
A solar power plant is developed under an EPC contract, with the contractor delivering a fully operational facility within two years and ensuring performance guarantees.

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Synonyms:
Turnkey Contract, Design-Build-Finance-Operate (DBFO)
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