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EPC / LSTK Standard Contract Forms
Project Companies and National Oil Companies (NOC) in the MENA region mostly adopt bespoke contract forms for procuring EPC contracts for the implementation of green field and brown field oil and gas projects. However, the risk allocation in bespoke contract forms is often viewed with suspicion by the contractors who will resort to setting higher contingency factor to overcome the unknown risks resulting in erosion of price competitiveness and sowing the seeds for an adversarial relationship.
One of the primary reasons for costly disputes is the uncertainty of the terms in a contract, and indeed the chances of ambiguity occurring are more in bespoke contract forms.
The continued low oil price has negatively impacted the implementation of oil and gas projects straining the relationship between the contracting parties. To reduce the risk of failed project ventures and costly disputes, it is advisable that the contracting parties consider the use of standard contract forms when appropriate.
• The standard forms of contract are in printed form and published by an authoritative professional body of the industry recognised by both parties.
• Drafted and agreed by recognised bodies representing all cross-sections of the industry, as a result, the risk allocation is more balanced.
• Industry practitioners are comfortable and familiar with the standard forms, usually capable of interpretation by case law.
• Using a standard form avoids the cost and time of individually negotiated contracts and is suitable for wide range of projects.
The attached slides provide inference regarding the requirements of EPC / LSTK contract forms and some of the standard contract forms published by professional bodies with a particular emphasis on Institution of Chemical Engineers (IChemE, UK) forms of contracts for the design, construction and commissioning of performance-based process plants.