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August 31, 2016

Steinberg Authors Two Volumes on EPC Contracts


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Howard Steinberg, of counsel in Shearman & Sterling’s Project Development & Finance Group, has authored a two-volume set entitled Understanding and Negotiating EPC Contracts (Routledge 2016). 

This series is a great resource for contractors, developers, sponsors, project managers, engineers, lawyers, environmentalists, insurers, lenders, accountants, bankers, real estate owners, government officials, reporters, consultants, and concerned citizens. It provides practical and comprehensive information for understanding virtually every aspect of engineering procurement and construction (EPC) contracts,supplemented with real-life examples and court decisions. Emphasizing current market practices and strategic options for risk-sharing, the series includes a narrative description of essentially all of the issues involved in EPC contracting and examines a sample EPC contract, provision by provision, with clear explanations of risk apportionment.  Also examined are the fundamental commercial principles and pitfalls of “turnkey” contracting for major infrastructure projects anywhere. All discussions are supported by legal citations that serve as points of departure for more in-depth (or even scholarly) research.  

Steinberg, who has 35 years of experience working on infrastructure transactions in over 100 countries, briefly shares his  thoughts on EPC contracts and his motivation for writing theguides.

What motivated you to write this book series?

Large infrastructure projects often attract the most visionary, intelligent and determined people from each of the various disciplines and professions involved.  I wrote this book set because even with all these talented people, many projects encounter serious and sometimes fatal problems.  Some of these problems are beyond anyone’s power to control, but in my decades of experience, I have found that many of them could have been avoided entirely or at least mitigated.

The engineering, procurement and construction (EPC) contract is the battle plan for any infrastructure project.  Obviously, those involved will have to confront the forces and laws of nature. Unfortunately, however, these unsuspecting participants often fall prey to landmines unwittingly planted by the project’s own organizers.  These “secondary” risks often could have been prevented had the project’s organizers taken the time to ascertain the natural and artificially created risks involved in the project and then allocated them to the project’s various participants.  Without a good plan of action to minimize these risks, project participants may find themselves entrenched in skirmishes against one another.  If this happens, everyone involved will suffer unnecessary disappointment and loss.  My goal in writing this series is to help project participants avoid these pitfalls by showing them how an organized EPC contract can reduce the likelihood of confusion, disorganization and even sabotage in the project’s life cycle.

What is the one thing you hope readers take away from theseries?

I hope readers of this series will see that experts are only as good as the plans they are given.  Without an EPC contract that has squarely covered the typical risks in infrastructure projects, experts too are lost and disaster could be always just an event away.

Is there anything important to highlight about EPCcontracts?

EPC contracts can be thought of as homework for the project participants.  If they are diligent and steadfast in their approach to drafting the EPC contract, they are likely to be well-prepared for any test and therefore act with confidence in carrying out their duties.  On the other hand, if the contract has been hastily tied together in a few desperate “cram” sessions, poor performance or failure is more likely, and therefore project participants tend to act defensively rather than cooperatively should risks materialize.

What is a common misconception about EPC contracts that you would like to clear up?

The most common misconception is that EPC contracts can shift burdens entirely from one party to another and protect a party from harm or loss.  Almost without exception, this is not true.  Risks that materialize affect all parties.  Although one party may bear most of the financial consequences of a risk, all participants will suffer in various degrees.  Believing that one’s right hand is out of danger if the left hand sustains a cut fails to take into account how interrelated the body (like an infrastructure project) really is.  In general, the right hand will be safe unless the left hand doesn’t properly attend to its injury.  An uninformed or nonchalant evaluation of the wound on the left hand may be the death knell for both hands.  An infrastructure project is like a living organism, generally strong but not immune from risks regardless of the vaccines that may have been taken.