Use Of EPC Contracts In The Republic Of Kazakhstan

Crisis phenomena in economy increasingly bring forward the matter of more detailed elaboration of potential risks associated with construction contracts applied in Kazakhstan. Conventional construction contracts are replaced by internationally used contracts adjusted to Kazakhstan standards.

1. EPC Contracts - Overview

   EPC (Engineering, Procurement, Construction) combines three primary construction stages (engineering, procurement, and construction itself). EPC is the general name for construction contracts applied for implementation of complex construction projects in the international construction industry.

   EPC contracts are conventionally viewed as a risk management instrument in the course of construction projects, and as an instrument ensuring balance of interests of the parties to the construction project.

   A distinctive feature of EPC contracts is the so-called "complex approach", which integrates efforts of all participants in the construction project. The approach includes coordination of efforts of all project participants by a single party - an engineer, supervisor, or project manager, whose role is further described in more details.

   For a number of reasons described below, such form of EPC contracts as FIDIC contracts is more popular in Kazakhstan. Just as initially designed, such contracts are by default intended to be universal and efficient within the legal system of virtually any country. Moreover, such contracts are widely used in international practice, especially in the countries of Western Europe, being the primary contracts used for implementation of large-scale projects with complex jurisdictions.

2. Forms of FIDIC Construction Contracts: Origins, Types, Structure

   FIDIC stands for Federation International des Ingenieurs-Conseils - International Federation of Consulting Engineers. Established in 1913 in France as an association of construction engineers1, this organization is currently involved in development of standard contractual terms to regulate relations between the parties to construction projects.

   The first standard FIDIC contract was developed in 1947 upon request of the World Bank. Nowadays, the following standard forms of FIDIC construction contracts issued in 1999 are widely used:

   Conditions of Contract for Construction ("The Red Book"2); Conditions of Contract for Plant and Design Build ("The Yellow Book"); Conditions of Contract for EPC/Turnkey Projects ("The Silver Book"); Short Form of Contract ("The Green Book"); In 2008, a new standard form of FIDIC contract named "Conditions of Contract for Design, Build and Operate Projects", formerly known as "DBO form" was issued.

   Apart from the primary standard forms, FIDIC also issues standard contract forms pertaining to various construction-related fields, such as financing, various types of services, etc.

   The main feature of standard FIDIC forms is such party as an engineer. In these forms (basically, in the Red Book, the Yellow Book, and DBO form), an engineer is a representative of the Customer responsible for coordination of construction project implementation and relations between the Customer and the Contractor3. It shall be admitted that Engineer (in other versions - the "Supervisor", "Contract Administrator", etc.) is a critical link in the chain of interactions among participants in any construction project. Therefore, the provisions on Engineer are contained in other standard forms of construction contracts (apart from FIDIC) that will be described further.

   Differences between certain standard FIDIC forms are usually lie in the position of Engineer, in presence or absence of other participants in the construction project, as well as in allocation of duties between Customer and Contractor throughout the main stages of construction project, namely:

   Supply of equipment, engineering, and design; Construction; Commissioning and operation; For the avoidance of doubt, note that the foregoing are the basic stages of construction project and may be implemented simultaneously and do not include multiple intermediary sages. Such stages are described in this section solely for the purpose of demonstration of basic differences between primary FIDIC...