In an article published in the May issue of POWER Magazine, Judah Lifschitz and Daniel Kapner discuss top risk mitigation tips to achieve a successful power and energy project.
“The principal mechanism to manage project risk is the EPC contract,” they share. “An EPC contract is nothing more, and nothing less, than an amalgamation of assumption of risk formulas. It is no coincidence that the EPC contract provisions associated with the allocation of the greatest risks are frequently at issue in major claims and disputes. A successful project requires that these provisions be carefully considered in every contract.”
Lifschitz and Kapner encourage owners to develop a reasonable schedule and budget. “Claims and disputes regularly arise because the project schedule, budget, or both, are unreasonable and fail to properly account for the project’s needs,” they explain. “To mitigate against an owner’s risk of delays, the EPC contract should include delay liquidated damages in the event the EPC contractor fails to achieve substantial completion by the required substantial completion deadline.”
The attorneys also discuss that claims and disputes regularly arise when new technology that has not been adequately tested is used in the project. Prior to the project’s commencement, participants should evaluate what technology risks exist for the project and devise a plan to mitigate and manage those risks.
Lifschitz and Kapner stress that the EPC contract should provide a mechanism to facilitate the resolution of a dispute if one arises. “If a dispute procedure in an EPC contract simply provides that the parties will resolve disputes in litigation (or arbitration) with nothing more, then it is encouraging a fight involving many lawyers, rather than creating a meaningful mechanism to de-escalate and facilitate the resolution of disputes outside of court.”
To read the full article, click here.