Legal Definitions - ENGINEERING PROCUREMENT AND CONSTRUCTION CONTRACT

An Engineering, Procurement, and Construction (EPC) Contract is a comprehensive agreement where a single contractor is responsible for the entire lifecycle of a project, from its initial design to its final completion and handover.

Under an EPC contract, the contractor takes on the responsibility for:

• Engineering: Developing all necessary designs, plans, and technical specifications for the project.
• Procurement: Sourcing, purchasing, and delivering all materials, equipment, and services required for the project.
• Construction: Building, installing, and commissioning the facility, ensuring it is ready for operation.

This type of contract is often referred to as a "turnkey" agreement because the client receives a fully functional facility that is ready to operate, with the contractor bearing significant risk for the project's design, cost, and schedule.

Examples:

• Building a New Pharmaceutical Manufacturing Plant:

  A pharmaceutical company wants to expand its production capacity by building a new state-of-the-art manufacturing plant. Instead of hiring separate firms for design, equipment purchasing, and construction, they enter into an EPC contract with a specialized industrial construction firm. The EPC contractor is then responsible for designing the plant layout and cleanroom specifications (engineering), acquiring all the necessary processing equipment, ventilation systems, and raw materials (procurement), and finally constructing the facility, installing the machinery, and ensuring it meets all regulatory standards and is ready for drug production (construction).

  This illustrates an EPC contract because the pharmaceutical company hands over the entire project to a single contractor, expecting a fully operational plant at the end, without managing the individual design, purchasing, or building phases themselves.

• Developing a Large-Scale Solar Power Farm:

  An energy utility company decides to invest in renewable energy by commissioning a new solar power farm capable of generating electricity for thousands of homes. They sign an EPC contract with a renewable energy development company. This contractor then undertakes the detailed site analysis and panel layout design (engineering), procures all the solar panels, inverters, cabling, and mounting structures from various suppliers worldwide (procurement), and then manages the entire installation, grid connection, and testing of the solar farm until it is fully operational and generating power (construction).

  This is an EPC contract because the utility company receives a complete, operational solar farm from a single contractor, who managed all the technical, logistical, and building aspects from start to finish.

• Constructing a Desalination Plant for a Coastal City:

  A rapidly growing coastal city faces water scarcity and decides to build a new desalination plant to convert seawater into potable water. They award an EPC contract to an international engineering and construction consortium. The consortium's responsibilities include designing the plant's reverse osmosis system and water treatment processes (engineering), purchasing all specialized membranes, pumps, pipes, and control systems (procurement), and then building the entire facility, installing the complex machinery, and commissioning it to ensure it produces clean drinking water to specified standards (construction).

  This demonstrates an EPC contract as the city contracts with one entity to deliver a fully functional and operational desalination plant, transferring the comprehensive responsibility for design, material acquisition, and construction to that single contractor.