FIDIC CONTRACTS AND EPC CONTRACTS

2.Green Book: The Green Book is suitable for relatively small capital projects (less than US$500,000) and is recommended for use on simple engineering and construction works that are repetitive or of short duration. The Green Book is a flexible book of administrative and commercial regulations and can be easily revised according to the needs of the parties.

3.Yellow Book: Suitable for projects where the contractor is responsible for design and construction. It is usually used for industrial plants and infrastructure projects. For example, in a power plant project, the contractor undertakes both design and construction.

4.Silver Book Epc Contracts: As will be explained in detail under the subheading, these contracts are designed for turnkey projects where the certainty of the final cost and schedule is of critical importance to the employer. The contractor assumes full responsibility for design, procurement, and construction. These are referred to as EPC Contracts. The majority of the risks are borne by the contractor. For instance, in a highway project, the contractor manages all processes and delivers the completed project to the employer.

5.Gold Book: This contract is suitable for long-term projects that include the responsibilities of design, construction, and operation. Unlike EPC Contracts, it also imposes an operational obligation on the contractor. For example, the contractor undertakes the design, construction, and operation of a water treatment plant for a specified period.

WHAT İS AN EPC CONTRACT

As defined above, an EPC contract is a type of agreement regulated under the Silver Book of FIDIC contracts. It is particularly used for large-scale infrastructure and industrial facility projects. EPC stands for “Engineering, Procurement, and Construction.” This model is a contract type in which the contractor assumes full responsibility for the engineering design, procurement of materials and equipment, and construction processes. In EPC contracts, the contractor is responsible for all stages of the project and delivers a turnkey project to the employer. These contracts are especially preferred in large-scale industrial and infrastructure projects.

KEY FEATURES OF EPC CONTRACTS

1. Turnkey Projects: The contractor completes the project within the specified time and budget and delivers it to the employer in a ready-to-use state.

2. Single Responsibility: The contractor is responsible for all processes, relieving the employer from technical and operational details and providing a single point of contact.

3. Fixed Price and Schedule: EPC contracts generally include a fixed price and a specific completion schedule, ensuring cost and time certainty for the employer.

4. Risk Transfer to the Contractor: Most of the risks related to the project are borne by the contractor, reducing the employer’s risks.

THE RELATİONSHİP BETWEEN FIDIC AND EPC CONTRACTS

EPC, as a project delivery method, falls within the scope of FIDIC, and FIDIC’s Silver Book is a specific contract model designed for such projects. In other words, EPC is not a type of FIDIC but an application area.

In FIDIC contracts, the allocation of risks varies depending on the type of book selected; while risks are more balanced in the Red Book, most of the risks are borne by the contractor in the Silver Book. This type of book is used in EPC contracts.

FIDIC contracts are more flexible and encourage cooperation between the parties. EPC, on the other hand, generally offers a rigid structure that anticipates full responsibility of the contractor outside of operation.

In FIDIC’s Red Book, the design is the employer’s responsibility, whereas in the Yellow and Silver Books, the contractor is responsible for the design. Similarly, in EPC contracts, the design responsibility lies entirely with the contractor.

HYBRİD MODELS BETWEEN FIDIC AND EPC

In some projects, hybrid contract models are implemented by combining the advantages of EPC with the flexibility of FIDIC. For instance, while the employer defines the overall scope of the project according to the EPC model, i.e., the Silver Book, they may require certain subcontracted works to be governed by the FIDIC Red Book or Yellow Book. This approach is particularly common in infrastructure projects.

DİSPUTE RESOLUTİON MECHANİSMS

FIDIC contracts include specific mechanisms for dispute resolution, such as:

1. Dispute Adjudication Board (DAB): A neutral board is appointed to resolve disputes between the parties.

2. Arbitration: FIDIC contracts often refer to international arbitration mechanisms. Arbitration is typically conducted under the ICC (International Chamber of Commerce) Arbitration Rules as specified in FIDIC.

In EPC projects, arbitration is generally the primary dispute resolution mechanism. Arbitration, with binding decisions, often takes place in a neutral venue.

For international projects, ICC or United Nations Commission on International Trade Law (UNCITRAL) arbitration rules are commonly preferred.

EXAMPLES OF PROJECTS UTİLİZİNG EPC AND FIDIC CONTRACTS İN OUR COUNTRY

1. Istanbul Airport:

Constructed in accordance with the EPC model, this project was completed on time and within the allocated budget. The project’s scope, cost, and delivery schedule were clearly defined.

2. Akkuyu Nuclear Power Plant:

As a strong example of the EPC model, the project is progressing successfully thanks to the extensive experience of the contractor, Rosatom.

The Akkuyu Nuclear Power Plant Example

The Akkuyu Nuclear Power Plant (NPP), Turkey’s first nuclear energy plant, is being managed in accordance with the EPC model. The plant is being constructed by Russia-based Rosatom and consists of four reactors with a total capacity of 4,800 MW.

EPC Structure of the Project:

1. Engineering:

The entire technical design of the project has been carried out by Rosatom. Nuclear safety standards were prioritized during the design phase.

2. Procurement:

The procurement of equipment and materials for the nuclear facility has been undertaken by Rosatom and its subsidiaries. For example, reactors and turbines have been sourced from Russia.

3. Construction:

The construction process is being conducted with the participation of local subcontractor firms from Turkey.

Transfer of Risks to the Contractor

In the Akkuyu project, the majority of the technical and operational risks arising from the design, procurement, and construction processes have been assumed by the contractor, Rosatom. Additionally, under the EPC model, all necessary tests for energy production and operational processes will be conducted by the contractor upon the plant’s completion, after which the plant will be handed over to Turkey.

Financial and Operational Structure

Akkuyu stands out not only for its EPC contract but also for incorporating the “Build-Operate-Own” (BOO) model. Under this model, Rosatom will retain operational rights for a specified period after completing the plant’s construction and will sell the energy produced during this time.

Application of FIDIC and EPC Contracts in the Akkuyu Project

In the Akkuyu project, along with the EPC model, certain sections also utilize FIDIC contracts. Specifically, for works such as the construction of infrastructure and auxiliary facilities, FIDIC models like the Red Book, where the employer holds design responsibility, or the Yellow Book, where the contractor assumes design responsibility, may be employed.

The Akkuyu Nuclear Power Plant benefits from the turnkey structure and risk management advantages provided by the EPC contract, while also leveraging the flexibility of FIDIC contracts. In such projects, selecting the appropriate contract types is critical for cost control, timely delivery, and overall project success.

Conclusion

FIDIC and EPC contracts offer different advantages depending on the project scope, risk allocation, and the employer’s needs. While FIDIC contracts have a broad range of applications due to their flexible structure and adherence to international standards, the FIDIC Silver Book, or EPC contracts, provide an ideal solution for projects where nearly all responsibilities are transferred to a single contractor.

Project managers should evaluate the advantages and disadvantages of both contract types to select the most suitable model for their projects. Proper understanding and implementation of these contracts are crucial for the successful completion of projects.