To use the resources of each other for the mutual benefit of all is basically the main point of EPC project finance. Although, for such relationships, it will still be governed by Canadian laws for its proper implementation.
What is EPC in project finance?
Project finance is the funding of large investment projects that are usually capital-intensive and long-term to finish. In making project finance available, EPC is one of the delivery methods for these investment projects in Canada.
EPC stands for Engineering, Procurement, and Construction. It usually refers to EPC project finance. An EPC contract or EPC finance project usually occurs when a project owner is looking for a company that will take care of the three aspects of the EPC:
- Engineering: developer does the engineering and architectural design of the project, including the structural, electrical, sanitary, and other specialized engineering as necessary.
- Procurement: developer does the canvassing, financing, and purchasing of the materials needed for the project.
- Construction: developer implements or executes the project, according to the set timeline and budget agreed by both parties.
Here, the client expects that the project to be turned over is a completed one, without any delay and any other problems.
EPC may also refer to the EPC contract, which is a catch-all contract or a project finance document. This contract or document establishes the rights of both parties, and the obligations of the developer or contractor. This will also regulate the contractual relationship between the project owner and the developer or the contractor.
Advantages
There are advantages why a lot of companies – developers or contractors alike – engage in the business of EPC project finance, and why a lot of owners hire these companies.
Liability
One of the biggest advantages when a project owner engages in EPC project finance is that the burden of designing, purchasing, and implementation of a development project is taken away from them.
The responsibility or any liability arising out of the project finance is transferred to the company or the developer, who is responsible for the overall management of the project.
Some of the risks that a contractor or developer may be held liable for are:
- Schedule and timeliness of the project’s delivery
- Defects in the design and construction
- Compliance with industry standards
Contractual relationship
An EPC project is contractual in nature. This means that an EPC contract is entered by both parties to assure the owner and the company (the developer or the contractor) that the rights of both parties are well protected.
It also ensures that the obligations of both sides are enforceable through the contract.
For example, if there’s no delay in the payment or delivery of the funds on the part of the owner, the company is also expected to complete the project on time.
As such, a contract’s terms and conditions must clearly specify the roles of each party in the EPC finance project.
Use of other’s expertise
Another advantage is that a project owner–who does not have any experience or expertise in construction–is able to do a development project through an EPC contract. This is especially true when an owner has the resources for it but is reluctant to do such a project because of the lack of industrial knowledge.
From the perspective of the owner, the risk of losing huge amounts of money or the project’s failure is shifted from the owner to the company. In turn, the company now must ensure that it can deliver the needs and wants of their client.
EPC vs. EPCM
Watch this video to know more about the difference of EPC and EPCM:
Consult with a project finance lawyer in your area to know more about EPC project finance. If you’re in in Calgary, contact a Lexpert-Ranked best project finance lawyer in Alberta.
What are examples of EPC projects?
Some of the industries that use EPC in project finance are:
- Infrastructure
- Mining
- Oil and gas
- Power or utilities
- Real estate
- Telecommunications
- Transportation
What laws apply to EPC project finance?
While it’s better to consult with a project finance lawyer on the specifics of an EPC contract, here are some of the laws that may apply:
Common law on contracts
As EPC projects are contractual in nature, Canada’s common law on contracts will apply.
As a general rule, the EPC contract will dictate the relationship between the owner and the company it contracted. However, if a provision or any of the parties violates the law, the law shall prevail.
Damages
EPC contracts may include provisions on liquidated damages. This will be enforceable once the owner suffers any losses because of:
- breach of contract,
- negligence which caused delay, or
- any other act of the developer or the contractor.
On the other hand, EPC contracts may also have terms which allow the developer or the contractor some solution if the delay is because of the project owner. These may include recovery of costs or extensions of the project’s completion.
Alternative dispute resolution
When provided in the EPC contract, or when required by provincial law, methods of alternative dispute resolution may apply to resolve any conflicts related to the project finance.
The methods include negotiation, mediation, and arbitration.
Provincial construction lien legislation
As to project finance, Canadian provinces’ laws on construction lien may also apply. These laws state who shall be prioritized in exercising their lien in case of default.
Some examples of these include:
- Ontario: Construction Lien Act
- British Columbia: Builders Lien Act
- Alberta: Prompt Payment and Construction Lien Act
In Québec, the relevant provisions of its Civil Code will apply.
Do you have further questions regarding EPC project finance contracts? Discuss the details with any of the best project finance lawyers in Canada as ranked by Lexpert.