Power and energy projects are inherently complex and risky. Therefore, management and proper allocation of risk among project participants are essential to success.

Careful drafting of the engineering, procurement and construction (EPC) contract is a critical first step in managing risk. The standard contract format used for power and energy construction projects is the EPC contract. In its traditional form, the EPC contract makes the EPC contractor responsible for the entire project, including engineering (design of the power plant), procurement (purchase, installation and performance of all equipment) and construction (construction of the plant).

EPC contracts can, however, employ different contract models and pricing structures, each of which carries differing levels of risk for project participants. Selecting the appropriate contract model and pricing structure to meet the unique needs of the project is important.

Reprinted courtesy of Gregory S. Seador, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.