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International EPC negotiations

Facts

Client: International mechanical engineering contractor

Country: Germany

Industry: Process engineering

Issues

Our client was part of a joint venture whereby it was to design, supply and install a process plant and its joint venture infrastructure contractor partner was to carry out the civil engineering and construction works.

Fenwick Elliott advised on the level of risk to be assumed by each party. For example, the JV was responsible for all risks relating to ground conditions, but this was something that would only be handled by the contractor. Further, specialist advice was given to the client on the heavily amended Orgalime turnkey contract, the strict design and delivery conditions it entailed, and the potential penalties involved in premature contract termination.

Finally, there was the question of the EPC project’s finance structure, in particular the provision of financial guarantees as the project progressed.

Solutions

Fenwick Elliott identified the risk allocation in the contract and produced a detailed risk schedule. By streamlining the negotiation framework, project finance arrangements were quickly put in place.

A full risk analysis regarding the turnkey contract illuminated a series of substantial and onerous risks which resulted in the client opting to withdraw from the project.

Because a pre-agreement had already been signed covering confidentiality, design and support, Fenwick Elliott was able to help serve notice of termination and help broker a full and final settlement between the two parties.

Benefits

By carefully analysing the risks of the original proposed contract, Fenwick Elliott enabled the client to understand the commercial risks it was undertaking. The risks could then be considered individually with a commercial eye.

The exercise was repeated for the revised finance arrangements, and the client realised that the level of risk they were being asked to take on was unsustainable.

After settling a full and final agreement, the client knew it had no further liabilities in respect of the project.