CONTENTS
- 1. How the EPC Contract Dispute Arose
- - Refusal to Pay the Additional Construction Costs
- 2. EPC Contracts: Responding to Delayed Payment
- 3. EPC Contract Dispute: Assistance Provided
- - Contract Interpretation and Analysis of Issues
- - Collecting Evidence and Proving the Need for Additional Construction
- - Review of Contract Terms and Strategic Arguments
- 4. EPC Contract Dispute Result: “Favorable Judgment”
- - If a Dispute Arises Concerning an EPC Contract
1. How the EPC Contract Dispute Arose
An EPC contract is commonly concluded in large-scale industrial projects and has a structure under which the contractor performs design, procurement, and construction on a turnkey basis.
This case is one in which, in an arbitration where a claim for additional construction costs arising from the owner's request was at issue, the client prevailed with Daeryun's assistance.
Refusal to Pay the Additional Construction Costs
This is the account of a client who came to Daeryun after a dispute arose over an EPC contract.
The client, a construction contractor, had entered into an EPC contract for a domestic industrial complex construction project and was carrying out the supply and installation of equipment.
In the course of the construction, unforeseen structural constraints and conditions differing from the design came to light, making additional reinforcement work unavoidable.
In addition, the supplementation and additional installation of new equipment were required for safety management purposes, and unforeseen work beyond the original plan inevitably proceeded.
As a result, the client incurred substantial unforeseen costs, but the ordering party refused to pay the additional construction costs on the basis of a comprehensive liability clause in the contract.
Concerned about substantial losses arising from an unreasonable interpretation of the contract, the client came to Daeryun and requested assistance.
2. EPC Contracts: Responding to Delayed Payment
In an EPC contract, the most important obligation of the owner is payment of the contract price.
If the owner fails to pay on time, the contractor or builder bears a significant burden in carrying out the work and managing its finances.
To prevent this and to protect the contractor's rights, the contract generally includes the following mechanisms.
▶ Imposition of interest for delayed payment
Accordingly, the contractor should include in the contract a provision that allows recovery of the procurement costs or financing interest incurred during the period of delay.
▶ Right to suspend the work
The contractor should therefore secure the right to suspend the work temporarily if nonpayment continues for a certain period.
▶ Termination of the contract and compensation for loss
In practice, the owner sometimes uses its superior position to omit such provisions protecting the contractor's reasonable rights.
When entering into an EPC contract, therefore, it is important for the contractor to set out clearly the provisions on delayed payment, suspension of the work, and termination and compensation for loss, so as to protect its rights in the event of a dispute.
3. EPC Contract Dispute: Assistance Provided
The key issues in this EPC contract dispute were whether the comprehensive liability clause applied to the additional construction and design changes, how to prevent the loss caused by the owner's refusal to pay, and how to prove the necessity and unavoidability of the additional construction.
The client incurred a considerable cost burden due to unforeseen pipe reinforcement and the additional installation of safety devices, but the owner refused to pay the additional costs, relying on the comprehensive liability clause in the contract.
In this situation, strategic assistance was needed to protect the client's rights and to have a reasonable claim for payment recognized.
Contract Interpretation and Analysis of Issues
The attorney closely reviewed the EPC contract and the design materials to analyze whether the comprehensive liability clause applied even to the additional construction work.
The attorney re-examined contract provisions that could be interpreted unfavorably in a realistic and reasonable direction and, using on-site construction reports, records of design changes, and the like, was able to clearly prove the unavoidability of the additional construction work and the costs incurred due to unforeseen work.
Presenting evidence capable of proving the unavoidability of such additional construction work in a systematic manner, the attorney argued the client's legitimate claim for payment.
Collecting Evidence and Proving the Need for Additional Construction
The attorney systematically collected and analyzed the on-site construction reports and design change materials prepared by the client.
Through these materials, the attorney proved the necessity of the additional construction that arose unavoidably due to on-site conditions, and clearly established that it was work the client could not have foreseen.
Review of Contract Terms and Strategic Arguments
The corporate attorney closely reviewed the design change approval procedure, the payment conditions, and the like under the EPC contract and established a strategy to protect the client's rights.
On this basis, the attorney prepared a logical argument and an arbitration strategy to obtain recognition of the payment for the additional construction costs.
In addition, by organically connecting the contract and the on-site evidence, the attorney persuasively presented to the arbitration that the client's rights should be duly protected.
4. EPC Contract Dispute Result: “Favorable Judgment”
Through the corporate attorney's strategic assistance and systematic submission of evidence, the client's argument was accepted.
Accordingly, the client was able to be fully compensated for the additional costs incurred and secured the rights that the contractor could legitimately assert.
If a Dispute Arises Concerning an EPC Contract
In complex disputes between companies, such as those arising from EPC contracts, various legal issues, including contract interpretation and the analysis of evidence, arise at the same time.
In such situations, the assistance of an experienced corporate attorney plays an important role in helping the company manage the dispute process in an organized manner and secure its rights in a stable way.
Drawing on its experience with various EPC contract cases and practical knowledge across industries, the firm anticipates the risks a company faces in advance and establishes strategies to protect its rights.
In addition, depending on the matter, the firm cooperates with experts in each field to provide comprehensive and practical assistance, focusing on minimizing the client's risk.
If a dispute related to an EPC contract arises and legal assistance is needed, please feel free to reach out to a 🔗corporate attorney for assistance.
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This content is based on actual case studies of Daeryun Law LLC with some adaptations, and the copyright belongs to our firm.
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