Mega Project Construction Contracts: An Owner's Perspective

1/6/2010 Articles

This paper was originally published by the Rocky Mountain Mineral Law Foundation in the Proceedings of the 55th Annual Rocky Mountain Mineral Law Institute (2009).

An owner, developer, or even project manager (Owner, for simplicity's sake) with a billion-dollar budget should, from its viewpoint, be able to get what it wants. Alas, it is not always so. The trinity of choices between time, cost, and quality lead mega project Owners to attempt to balance the possible combinations of rigorous quality control, tight completion schedule, and lowest initial and long-term outlay for their desired facility. The well-advised Owner will consider what contractual arrangement best suits the mega project; two major choices are (1) between the EPC (engineering, procurement, and construction) and the EPCM (engineering, procurement, and construction management) contract models, and (2) between the lump-sum, turnkey, and cost-reimbursable (with or without spending caps) approaches. Owners can and do mix and match these basic types of contracts, but generally they pair EPC with lump sum, and EPCM with cost reimbursable. Acknowledging that every generalization begets an exception and that agreements are negotiated with an almost infinite number of variations, significant differences and similarities may still be drawn between EPC and EPCM agreements, particularly with the types of payment (lump sum or cost reimbursable) in mind.