What is a EPC Contract?
EPC Contracts are used in England and Wales for major energy, infrastructure and process plant projects, most often where project finance is involved and the lender requires single-point responsibility. The contractor carries design, procurement and construction risk for a fixed price and a fixed completion date, which is why these contracts are sometimes called turnkey contracts. They typically include performance testing, liquidated damages for delay and for underperformance, and a defects liability period after taking over.
About the EPC Contract
An EPC Contract places design, procurement and construction of a project with a single contractor for an agreed price and completion date. Under England and Wales law it sits within the statutory construction contract regime, which means the payment and adjudication provisions of the Housing Grants, Construction and Regeneration Act 1996 apply whatever the contract itself says.
When do you need this document?
You need an EPC Contract when a project must be delivered to a fixed price and date with one party accountable for the whole outcome. That is typically a generating station, substation or grid connection, a process or manufacturing plant, a waste or water treatment facility, or a major infrastructure asset. It is the usual requirement where a project is funded on the strength of the asset itself, because a lender wants a single contractor carrying delay and performance risk rather than gaps between separate designers and builders.
What does it cover?
The contract fixes the scope through the employer's requirements and the contractor's proposals, and sets out the price and payment mechanism, the programme and completion date, and the testing the plant must pass before it is taken over. It allocates the risks that decide whether a project makes money: ground and site conditions, changes in law, delay caused by either party, and shortfalls in output. It then sets the consequences through liquidated damages for late completion and for underperformance, capped by an overall limit of liability, together with the defects liability period and the security package of bonds, parent company guarantees and insurance.
Common pitfalls
The most common problem is a mismatch between the design obligation and the insurance. A contract that promises the plant will be fit for a stated purpose imposes a stricter standard than reasonable skill and care, and professional indemnity policies frequently exclude it, leaving a promise with nothing behind it. The second is a liquidated damages regime that is not tied to the tests: if the performance tests are not defined precisely enough to produce a pass or fail, the damages become unenforceable in practice. The third is excluding the Contracts (Rights of Third Parties) Act 1999 without putting collateral warranties in place, which leaves funders and purchasers with no route to enforce anything.
Governing law
Applicable law
This EPC Contract is drafted to comply with England and Wales law. Key legislation includes:
- Housing Grants, Construction and Regeneration Act 1996: Applies to most construction contracts in the United Kingdom. It gives each party a right to refer disputes to adjudication at any time and imposes a statutory payment framework, so payment and dispute clauses that conflict with the Act will be overridden by the Scheme for Construction Contracts
- Construction (Design and Management) Regulations 2015: Allocates health and safety duties between client, principal designer and principal contractor. An EPC Contract needs to state clearly which CDM role each party holds, because the duties apply regardless of what the contract says
- Building Safety Act 2022: Introduces duty holder obligations and, for higher-risk buildings, gateway approvals and the golden thread of information. It also extends limitation periods for certain claims, which affects how long the contractor's exposure lasts
- Contracts (Rights of Third Parties) Act 1999: Determines whether funders, purchasers and tenants can enforce contract terms directly. EPC Contracts usually exclude the Act and grant third party rights instead through collateral warranties or a schedule of third party rights
- Supply of Goods and Services Act 1982: Implies terms as to reasonable skill and care in the design and services elements. Where the contract promises a specific performance outcome instead, that fitness for purpose obligation is a higher standard and should be a deliberate choice
- Late Payment of Commercial Debts (Interest) Act 1998: Sets a statutory entitlement to interest on late payment unless the contract provides a substantial remedy. Interest rates well below the statutory rate can be challenged
