Projects will typically sign an EPC contract with a single counterparty, which will be tasked with delivering the full project on a fully-wrapped, turn-key, date-certain, fixed price basis. As the name suggests, the EPC contractor will typically design the plant, procure the supplies required to construct the plant, and then complete construction.
By engaging with a single counterparty, the project aims to avoid interface risk, in terms of which it is difficult to assign responsibility for delivery failures to one of several construction counterparties. Although this means that the EPC contractor is fully responsible for delivery of the plant, the EPC contractor may still use subcontractors. However, the EPC contractor ‘wraps’ this risk, by taking responsibility for their performance. There are some exceptions to this rule, where the project may enter into a major supply contract for the technology required to build the plant, and a balance of plant contract for the ancillary services. An example of this sort of split contract construction arrangements is used in wind farms, where turbines are procured in a Turbine supply Agreement, and the balance of the plant (civils, wiring, transformers, erection, etc) in a Balance of Plant Agreement.
The contract will be for a fixed price so that the project will be able to ensure that it is sufficiently funded in order to complete construction without running out of funds. Similarly, date certainty is important, since the project will be incurring interest during the construction period, and may have penalties in the offtake contract if it is unable to start producing output on time.