EPC Contractual Structure

Given the multiple factors influencing the development of an algae biofuels project, no single contractual structure will apply to all projects.  An algae biofuels facility that grows the algae and produces the biodiesel at the same site will have many construction issues to address.  A project developer may want to retain one contractor to provide proprietary process equipment and a second contractor to undertake the design and engineering of the balance of plant.  The balance-of-plant contractor will be responsible for the commissioning, start-up, and performance testing of the entire facility and will provide warranty services.  In this arrangement, the work of the two contractors will need to be closely coordinated both in space and in time.  The balance-of-plant contractor will need information about the specialty contractor’s process equipment to design, construct, and lay out the entire plant in a way that economically connects the various parts to power, controls and data systems, and other facilities.  The balance-of-plant contractor will also need a delivery schedule for the process equipment to formulate a schedule for preparing foundations and erecting process equipment.

The project developer and the specialty contractor often enter into a supply agreement where the contractor agrees to engineer, procure, and construct process equipment components and deliver them to the site on a definite schedule and to provide expert assistance in commissioning and testing that equipment after it is erected and connected to the balance-of-plant facilities.  The specialty contractor also provides a performance guarantee measured in terms of inputs (including energy usage) and outputs.

The project developer then enters into a balance-of-plant agreement with a general contractor who agrees to design and construct the other necessary facilities for the project, including foundations, roads, storage facilities, biodiesel storage and loading facilities, and electrical and control systems for the entire algae biofuels facility.  Both sets of agreements will attempt to avoid interference, duplication, or omission between the scopes of work of the specialty contractor and the balance-of-plant contractor and to ensure that, collectively, the agreements will result in a fully constructed, integrated, and operational project.

In drafting contracts for process equipment and the balance-of-plant construction, the developer must focus on the scope of work, measures of completion, respective warranty obligations, limitations of liability, and related insurance issues.  These issues are discussed under Scope of Work.

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