Engineering, Procurement, and Construction Contracts and Performance Guarantees
Engineering, procurement, and construction (EPC) contracts with long-term performance guarantees are becoming increasingly popular for some renewable energy technologies, such as commercial-scale photovoltaics systems.
EPC contracts give the owner unprecedented assurance that the system will provide the long-term energy benefits advertised without wasting time and money with the architectural and engineering (A&E) firm or expensive change orders. These performance guarantees cover the entire installation and go way beyond manufacturer warranties that only cover specific parts and not the system as a whole.
EPC and performance guarantee contracts can be a wise choice for many reasons. Often, A&E firms do not have the in-house expertise to understand fully how to specify renewable energy systems. Due to the newer nature of these technologies and the rapidly developing nature of many technologies, this is a specialized field of its own for each renewable technology type. If the A&E firm specifies particular equipment, while it may be feasible, it may not be the optimal design or the most likely to be available at construction.
EPC contracts also provide more flexibility in equipment choices that can reduce change orders and construction delays. For example, many photovoltaic modules change specifications and dimensions on almost a monthly basis. Even the oldest and most reputable manufacturers are working to keep pace with fierce competition in the field today. Given that the modules are the heart of the photovoltaic system, it reasons that specifying a particular module in the construction documents might result in a change order and result in cost over runs and delays by actual construction.
In an EPC contract with a performance guarantee, the contractor has a strong financial incentive to use the most reliable and highest performing equipment and to ensure the highest standards are maintained throughout installation and that any details that could influence long-term performance are addressed. Practices ranging from cherry picking highest output modules to oversizing wiring and conduit to improved operations and maintenance (O&M) plans might not be necessary for inspection or commissioning but can contribute to meeting the contractor's long-term performance liability. These same practices in turn enhance the long-term energy performance to the greater benefit of the facility and those that operate it.
Performance guarantee contracts attract top renewable energy contractors with long-term success in their fields. Less capable or experienced contractors will not savor the extra liability involved, nor will they have the expertise or even access to the top quality equipment necessary to fulfill a performance guarantee.
Certain provisions should be included with any EPC contract to ensure coordination and consistency with the remainder of the project. As noted in the selecting the design team section, all contracts and subcontracts related to the project should include provisions requiring participation in the integrated design process including coordination of design with other related aspects of the project.
The EPC contractor needs to work with the A&E firm to understand the building elements that are necessary to the integration of the renewable energy system. In addition, an EPC contract needs provisions to ensure coordination with the larger project construction team. While coordination is important, this type of design and construction contract allows the contractors to do what they do best and frees more of the agency's critical planning resources for other aspects of the project.
Additional provisions standard with other construction contract terms should also be included in the EPC contract. These include requiring the team to perform enhanced commissioning over the first year and developing an O&M manual and training for the system.
Through a combination of EPC contracts combined with long-term performance guarantees, the construction relationship is transformed from being sometimes adversarial to being a win/win situation for everyone involved.