Rate Contracts Vs EPC Contracts - Differences

 

Rate Contracts Vs EPC Contracts

EPC - Engineering, Procurement & Construction

EPC 

By Nageswara Rao, 9492432160 

  

• Source: EPC Standard Agreement issued by Railway Board  (Basis is practiced being followed in Delhi Metro)

• Also known as the Turnkey project (Turn of the Key)  - The EPC Contractor coordinates throughout the execution of the Project from Engineering to commissioning underway, and assumes the responsibility for the installation.

• A new and prominent form of Contract Agreement in the Construction industry.    

• Key feature: To execute and deliver the Project (from Planning to Completion in all respects)  within the Agreed time and Budget.   

 

• EPC stands for Engineering, Procurement & Construction 

 

Letter	Stands for	EPC Contractor will carry out
E	Engineering	the detailed Engineering Design of the Project.,
P	Procurement	Procurement of  all the Equipment and Material for the construction of the said Project.,
C	Construction	then, Construction of the Project and Delivering it to their Client.

• Usually in EPC Contracts, the Client i.e., IR employs a PMC - Project Management Consultant to supervise the work.   

 

Need of EPC in Indian Railways  

• In Conventional Item Rate Contracts (present Works Contracts), the usual drawbacks are  

A. Delay in Survey  

B. Delay in preparation of Estimates 

C. Delayed Measurements  

D. Inadequate funds 

E. Cost overruns 

F. Time overruns 

G. Disputes on various issues with Contractors  

• To address all the above issues, the Railway Board will come out with a Model EPC Agreement,  which was released recently.   

Differences between Item Rate Contracts and EPC Contracts 

 

Item Rate Contracts	EPC Contracts
Conventional method	Latest and Modern method
Indian Railways provides the detailed design as well as the estimates of quantities for different items of Work i.e., Bill of Quantities	Responsibility for Designs and Estimates is left to the EPC Contractor, not the Indian Railways
Prone to Cost overruns and Time Over-Runs due to delays in design and drawing, variations in items and quantities, and inadequate fund provision	Assigning the responsibility for investigations, design, and construction to the Contractor
Considerable time of Project Engineers of IR is consumed in dealing with variations in quantities, the introduction of NS (Non-Scheduled) Items, and variations in the Contract price	Now, Railway Engineers concentrate on the Policy matters
Payments for Individual Items / Units (based on the measurements recorded in the Measurement Book)	Payments are linked to specified stages of Construction (Payment milestones)
Fixed designs provided by the Indian Railways	Allows Contractor to design and construct the Project using Design Engineering and global best practices as specified in the Standard EPC Agreement
EMD - Earnest Money Deposit	Bid Security
SD - Security Deposit	Retention Money
PG - Performance Guarantee	Performance Security

Salient features of the Standard EPC Agreement of Indian Railways  

• Lump sum Contract Price (subject to Price Variation clause) 

• Within Time 

• Time Extension - Arising out of delays due to change of scope, force majeure, delay caused by or attributable to the Indian Railways. 

• Assigned responsibility for Investigations, Design & Construction to the EPC Contractor 

• Transferring the Construction Risk to the EPC Contractor.  

• Payments are linked to the Specific Stages of Construction. (unlike individual measurements like  in existing rate contracts/Works contracts) 

• Defect Liability Period - 2 years 

• Bid Security (Replacing EMD ) 

• Retention Money ( Replacing the Security Deposit)  

 

• Performance Security (Replacing the Performance Guarantee) 

 

• Risk Allocation distribution: 

  

·        Contractor: Project risks such as soil conditions, weather, and commercial and technical risks relating to Design and Construction.  

 

·        Indian Railways:  Delays in handing over Land, approvals from Road Authorities for ROB/RUB at Level crossings, Environmental clearances, shifting of utilities, and approvals in respect of engineering scale plan and signaling interlocking plan.  

 

Selection of the Contractor:  

• Open Competitive Bidding 
• All project parameters i.e., Contract Period, Price Adjustment / Price Variation, and Technical parameters are to be clearly stated upfront along with the Lump Sum Price for the Railway Project.  

 

Design & Construction:   

·        The ceiling of 25 % of the Contract price - any change in the scope of the Project.  Indian Railways will bear it. 

 

·        Survey, Investigations, Designs & Drawings - Responsibility of the Contractor subject to conformity with the specifications & standards laid down in the Agreement.  

  

• Authority Engineer:  

·        Representing Indian Railways   

·        Appointed an Engineer by the Railways among its Executive Engineers. or PMC - Project Management Consultancy by the Indian Railways 

·        Within 15 days from the Appointed Date 

·        Act as a Single Window for coordination with the Contractor.   

·        Responsible for Monitoring and supervision of the Construction of the Railway Project.   

Design Director: 

 

• Appointed by the Contractor
• Within 20 days of the Appointed Date 
• Head of Contractor’s Design Unit
• Responsible for Surveys, Investigations, collection of data, and preparation of preliminary and detailed designs.

 

DLP - Defect Liability Period:   

·        Two Years from the date of issue of Provisional Completion Certificate or 18 months from the date of Completion Certificate whichever is later.

·         Additional comfort to the Indian Railways  

·        The Contractor shall remedy any and all loss or damage to the Railway Project during the DLP at its own cost within a period of 15 days from the date of notice issued by the Railways.

  

·        If the Contractor fails to rectify the defects, the same will be rectified by the IR and impose the damage i.e., Actual cost incurred by IR plus 20% of such cost on the Contractor.   

 

Priority or Order of Precedence: In case of ambiguities or discrepancies, the document in the first column will prevail over the documents in the second column.

 

Document	Prevails over the_____
EPC Agreement	All other Agreements & Documents
Relevant clause	All other clauses
Clauses	Schedules
Schedules	Annexes
Relevant Schedule	All other Schedules
Specifications & Drawings	The written description of the Drawings
Specific written dimension	Dimension scaled from the Drawing
The value written in words	The value written in numerals

• Appointed Date: The later of:  

A.             15th day from the signing of the Agreement 

B.             30th day from the date on which the Contractor has submitted Performance Security 

C.   The date on which Indian Railways has provided the ROW - Right Of Way and environmental & forest clearance at least 95% of the core land length and 90 % of the non-core land length of the Railway Project.  

• The Appointed Date is most important for calculating different periods in the execution of the Project.  

 

• Subletting / Sub-Contracts: 

 

·        Not more than 70 % of the Contract Price  

·        The Contractor Shall carry out at least 30 % of the Contract Price directly under its own supervision and through its personnel.  

·        Any sub-contract for works, if exceeds 5 % of the Contract Price, the same should be informed to Indian Railways by the Contractor.  

 

Training of Railway Personnel by the Contractor:  

·        The number of persons shall not exceed 6 

·        Before issuance of Provisional Certificate / Completion Certificate. 

·        In areas of diagnostic, troubleshooting, repairing, operation, and maintenance of S&T equipment  

·        In the area of SCADA (Supervisory Control And Data Acquisition) 

·        SCADA: A Control system architecture comprising computers, networked data communications, and a graphical user interface for high-level supervision of machines & processes. 

Bid Security: 

  

• 0.5 % of the Project estimated cost subject to a maximum of Rs.2 Crores.   
• Through e-payment gateway or Bank Guarantee Bond valid up to 90 days beyond the bid validity period. 
• Submitted by the Contractor along with the RFP - Request For Proposal  
• Remain in force in case of a successful bidder until substituted by the Performance Security. 
• Bid Security of unsuccessful bidders - returned within 7 working days of the issue of LOA. 

 Retention Money: 

 

• Guarantee money for the performance & obligations of the Contractor during the Construction Period.
• Equivalent to the SD - Security Deposit in Rate Contracts 
• 5 % of the Contract Price 
• They were recovered at the rate of 6 % of Bill payments subject to the maximum of 5 % of the Contract Price. 
• If the Contractor submits an irrevocable and unconditional Bank Guarantee towards the Retention Money, the IR should return the recovered amount to the Contractor.  

Performance Security:  

·        Equivalent to the Performance Guarantee in Rate Contracts.  

·        3% / 5% of the Contract Price 

·        Within 30 days from LOA (Letter Of Award/Acceptance)  

·        Extension: Another 30 days.  Damages 0.002 % per each day of delay.  

·        An irrevocable and unconditional Bank Guarantee 

·        Valid until 60 days of the expiry of the DLP - Defects Liability Period.  

• Failure to submit Performance Security in an Extended period, if any:  

·        Terminate the Agreement 

·        Encash the Bid Security (EMD) and adjust it as part of the damages. 

·         Balance Performance Security - shall be recoverable from the Contractor’s pending / future dues with IR in any of the ongoing/future contracts.

• Release of Performance Security: After 60 days of the DLP - Defects Liability Period/extended DLP 

  

 

Payments to the Contractor:  

·        Simple & Rational Method 

·        Broadly, works are divided into  

1.    Civil & Track works 

2.    S&T works 

3.    Electrification works

·        All the above works can be taken together under a Single Project or different Projects.  

·        Each item of the above works sub-divided into stages  

·        Payments will be made for each completed stage of work.  

Project Completion Schedule:  

 

• Scheduled Completion Date  - 900th day from the Appointed Date ( 30 months or 2 ½ years)

Project Milestone	Due date from the Appointed Date	Stage payments not less than ____ of Contract Price
I	240th day ( 8 months)	10 %
II	480th day ( 16 months)	35 %
III	700th day (approx. 23 months)	70 %
Completion	900th day (30 months or 2 ½ years)	100 %

 

Damages due to delay in completion of the Work:  

• Damages due to delay i.e., 0.05 % of Contract Price for one day delay from the date specified in the above milestones.  

• Maximum damages are not to exceed 10 % of the Contract Price. That means the maximum delay is  200 days ( 200 x 0.05 = 10)  

Contract Price: 

 

• Valid & effective until the issue of Completion Certificate 
• All payments in Indian Rupees
• Includes: All duties, taxes, royalty, and fees as per the laws and regulations in force as of the date.  
• Covers all the Contractor’s obligations for the Works under the Agreement and all things necessary for the Construction thereof and for the rectification of any defects during DLP in the Railway Project
• Excludes: Taxes if any paid by the Contractor 

 

Advance Payments to the Contractor:   

• Up to 10% of the Contract Price 
• In Two equal installments 
• For Mobilization expenses & for the acquisition of equipment 
• Interest Rate: Bank Rate + 4 % per annum 
• Irrecoverable Bank Guarantee to be submitted by the Contractor equivalent to 110 % of Advance Payment

 

 Examples of EPC in the Indian Railways / Transport sector. 

  

• RE - Railway Electrification Project - 781 Kms in Konkan Railway given to L & T in the year 2017.
• Delhi Metro Railway Construction 
• Construction of Railway Bridge in Jammu - Udhampur Railway Link 
• Secunderabad Railway Station - Redevelopment (undergoing)

 

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