Friday, May 26, 2006
In building a big project, there's a lot of risk. Sometimes it make sense for the contractors to bear all the construction risks, entitling the developer to a turnkey operation. A tool for doing this is the Engineering Procurement Construction contract (EPC), which has become a popular tool for construction of high-value processing plants. Contractors have found them useful because where they can accurately gauge the risks, they find them to be more profitable.
But according to Keith Hartley of London's Pinsent Masons, in The Winds of Change -- EPC Contracts for Offshore Wind Farms, contractors have backed away from bidding on EPC contracts for new offshore wind energy projects, where weather risks and uncertain technology make the projects more hazardous and thus more difficult to bid. The solution? A more complex blend of risk allocation that may require separate contracts for different pieces of the project.