EPC stands for Engineering, Procurement and Construction. Under a traditional EPC contract, one contractor is generally responsible for designing the project, procuring the necessary equipment and materials, constructing it, and delivering the completed facility to the owner.
A split EPC contract divides those responsibilities between two or more contracts rather than placing everything under one contract.
A common arrangement for an international project is:
- an offshore contract covering engineering, design, and equipment or materials supplied from outside the project's country; and
- an onshore contract covering local construction, installation, testing, and other services performed within the country.
For example, a power plant developer might contract with one company for $200 million of turbines, engineering, and equipment supplied from abroad, while a related or separate local contractor performs $100 million of construction and installation work.
There can be tax, regulatory, financing, and commercial reasons for splitting an EPC arrangement. However, splitting the contracts creates an important issue for the project owner: who is responsible if something goes wrong at the boundary between the contracts?
For that reason, split EPC structures frequently include agreements designed to coordinate the contractors and preserve overall responsibility for completing and operating the project successfully.
So, in simple terms, a traditional EPC contract gives one contractor overall responsibility, while a split EPC structure divides the project's engineering, procurement, and construction obligations among separate contracts.
