EPC and EPCM
delivery models
Engineering, Procurement and
12 Construction (EPC) scope
definition
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March 2023
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Role of the Scope of Work
Content Implications for form of contract
The Scope of Works (SOW) is among the most critical The level of scope certainty as at the date of contract
documents prepared in the design and construction execution will also dictate the terms of the contract,
process. both in relation to the contract type and the specific
contract terms.
It defines the design and construction activities and
responsibilities of the Contractor and others, including: It is important for the parties not only to understand the
level of scope certainty as at contract execution, but also
• fitness for purpose criteria for the project
the pathway to scope certainty beyond the date of
• the Contractor’s scope of work and design contract.
• the minimum standards to be achieved Uncertain scope is difficult to price and programme. It is
essential that the parties are of the level of certainty and
• technical criteria to be satisfied carefully and realistically allocate responsibility and risk for
• other project-specific obligations to be fulfilled by the the development of the scope to the point where
Contractor procurement, detailed design at shop drawing level and
actual construction can take place with confidence.
• the testing and commissioning process
• where relevant, how the Contractor’s activities must
Disaggregated contracting
interface with the activities of other designers and The threshold issue in the preparation of the SOW is
contractors. whether the overall project is to be delivered through a
single EPC contract or through a combination of contracts.
Risk The latter approach is usually described as a
Ill-defined scope obligations are among the primary disaggregated model.
causes of project failure. The fundamental risk with disaggregated contracting is the
Unfortunately, Principals often select a contract delivery lack of a single point of responsibility. The interfaces
method for a project and commence preparing the contract between the various scopes that must be combined to
documents without identifying their goals and objectives at make up the whole of the project must be managed and
an early stage. Hence, those responsible for developing each SOW must be coordinated with the other SOW’s so
the contract documents do not have a clear understanding that the project fulfils the Principal’s requirements.
of what the Principal wants from the final product. It is also
not uncommon for lawyers acting for a Principal to prepare
the general conditions in isolation from the Principal’s
technical consultants responsible for the Principal’s
requirements and other technical documents.
This leads to inconsistencies between the various
components of the construction contract and uncertainty
as to the extent of the Contractor’s obligations. It also
increases the risk of important aspects of the Contractor’s
obligations not being comprehensively described in either
the general conditions or the Principal’s requirements and
leads to a misalignment of the parties’ expectations, which
is a common cause of disputes and costly variations.
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Key steps in preparing the SOW
The following guiding principles are a useful guide to the preparation of the SOW.
• Allocate sufficient time and resources to conduct market research, gather information and identify its overall
requirements for the project.
• Document the project goals, objectives and purpose at the outset, so that those responsible for developing the contract
documents have a clear understanding of what the Principal wants from the final product and what it expects the
Contractor to deliver.
• Document the Principal’s requirements in a manner so that it articulates precisely and consistently what must be
designed and/or constructed by the Contractor and who will be responsible for design and other prior works (if any)
undertaken by the Principal.
• Undertake a global review of the contract documents, utilising the combined knowledge of the Principal’s project
management team, expert technical consultants and lawyers to ensure consistent and clear drafting throughout the
contract and certainty in relation to the project goals, objectives and purpose.
That process should be undertaken in the context of the requirements of the business case that has been approved,
especially in relation to programme and budget.
The key stages in developing the Principal’s requirements for an EPC Contract are:
STAGE 1
Establish the Employer’s project goals and objectives and
document the purpose of the project
STAGE 2
Document a detailed project plan setting out the Employer’s
time, budget, resource, and quality related requirements
STAGE 3
Select the method of project delivery (for present purposes the
D&B Contract)
STAGE 4
Prepare a design brief (‘Design Brief’) for the Design
Consultants, which describes the purpose of the project and
services to be performed
STAGE 5
Prepare the Employer’s Requirements for the D&B Contract,
including a project brief that describes the purpose of project
and final design and construction works to be performed by the
D&B Contractor (‘Project Brief’)
STAGE 6
Conduct a global review of the General Conditions and the
Employer’s Requirements
Each stage of this process will be described in further detail below.
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Stage 1: Establishing the project goals, • access restrictions
objectives and purpose of the project • design approval process
Prior to choosing the contract delivery method and • construction methodology
attempting to articulate the Principal’s requirements, the • the standard and quality of materials and finishes
Principal must establish its goals and the purpose of the
project. This will assist the Principal to consider and • performance requirements and outputs (if any)
prioritise its goals and objectives at an early stage and will
• the pricing and approval of variations and extensions of
ultimately form the basis of the Principal’s requirements to
time and financier step-in rights
be included in the EPC Contract.
• interface requirements with utilities and service
This will include consideration of the impact the project will
providers
have on its resources and existing operations and the
commercial, technical, quality and timing requirements. • the requirements for completion and certification.
It does not matter if the requirements cannot be finalised
at this point because these requirements will be updated It is therefore essential that the Principal determines what
as the design and planning progresses. its obligations are in order to meet these external
requirements from the outset. It can then communicate
The factors that the Principal must consider at this early them to those responsible for developing the contract
stage include: documents and, in turn, build those specific obligations
into the Principal’s requirements and ultimately pass on
• the overall timing of the project, including
those obligations to the extent feasible to the consultants
understanding the Principal’s current business market,
and the EPC Contractor.
where the market will be when the Principal intends to
sell the product generated by the project and at what Stage 2: Document a project plan
point in the boom/bust cycle the construction industry
is at the time of the project Once the Principal has established its internal and external
requirements, it then needs to prepare a detailed plan for
• key technology options the delivery of the project that articulates those
• supply chain constraints requirements. The plan should include:
• the specific timing requirements, including the critical • a clear statement of the purpose of the project
stages and milestones for the project and when they • the goals and objectives, including development time,
are required to be completed the development cost, the whole of life cost,
• budgetary restrictions and the Principal’s economic functionality and design life
and commercial drivers • key project risks
• availability of both internal and external resources • a resources plan that identifies internal resources and
required to complete the project where external resources are required to produce the
• the external requirements of customers and other contract documentation and deliver the project
relevant parties and authorities. • budgets
Determining the target market and the requirements of • an overall development Programme and milestones
customers and other external parties, in addition to the
Principal’s internal requirements, is critical during this • any other specific requirements of the Principal
stage. For example, in the property development sector,
• the inputs for which the Principal is responsible,
the external requirements of the residential and
either through its own resources or by contracting
commercial sales contracts, tenancy agreements, relevant
with others.
government authorities, Financiers (if any) and
arrangements with utilities and services providers will all Generally, it is not until the completion of this stage that
form the basis from which the Principal’s requirements the Principal will be in a position to consider the
must be developed. appropriate method of project delivery.
Analysing these external agreements and requirements is Stage 3: Selecting the method of project
critical to the Design and Construct (D&C) Contract
procurement process because they contain concessions delivery
which have been made by the Principal and which oblige There are numerous project delivery options for the
the Principal to ensure that the project is designed and Principal to choose from including:
constructed in order to fulfil certain requirements. This will
directly affect the D&C Contract and the Principal’s • design by the Principal and construction by a
requirements. Examples include: Contractor
• timing of construction • preliminary design by the Principal and final design and
construction by a Contractor
• approvals for commencement of the works
• total design and construction by a Contractor
• labour, safety, environmental and development
guidelines
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• design by Principal, construction by trade Contractors The Design Brief will develop as the design develops,
and management of project delivery by a construction but one must be included at the outset in all of the
manager Consultancy Agreements. The ultimate goal in the EPC
Contract project delivery method is to have the EPC
• design commenced by Principal: design completion Contractor assume an overall fitness for purpose
and construction by Contractor. obligation for the final design and construction of the
The selection of the most appropriate method requires project and for it to become responsible for the preliminary
careful thought and consideration of many of the factors design prepared by the Design Consultants on execution
identified in stages 1 and 2. of the EPC Contract. Therefore, it is critical that the Design
Brief prepared for the Consultancy Agreements is
This paper will not attempt to provide an analysis of the consistent with the Principal’s requirements to be provided
various project delivery methods. However, for the to the EPC Contractor.
purposes of illustrating stages 4 and 5 of the process, we
will identify some of the issues (not exhaustive) to be Examples of other important aspects to be considered by
considered by the Principal when preparing the contract the Principal when preparing the contract documents
documents for the project delivery method referred to in which specify the actual scope of services and
item (b) above. Here, the Principal elects to commence deliverables for each of the Consultants include:
preliminary design using the Design Consultants engaged • the building information system to be utilised
under separate agreements (Consultancy Agreements)
before engaging the D&C Contractor to perform the final • a clear description of the deliverables, coordination and
design and construction. interface obligations and the timing for the provisions of
the services, for each of the Design Consultants,
Stages 4 and 5 below focus on developing the two key during each phase of the design
construction-related documents for this method of project
delivery, which are: • the design Programme for the performance of the
services which must be consistent with the Principal’s
• the design brief for the preliminary design to be carried overall development Programme and timing
out by the Design Consultants (Design Brief) requirements described in stage 2 above
• the Principal’s requirements for a EPC Contract, • administrative issues such as reporting and attendance
the SOW. at meetings and where applicable must be consistent
Given that the scope and risk profiles will vary for each with the D&C Contract
project and across construction sectors, it is not possible • a statement that each Design Consultant confirms that
to provide a comprehensive list of all the issues the it understands the Principal’s goals and objectives and
Principal should consider when preparing the Design Brief the Design Brief
and the Principal’s requirements. However, the following
sections will highlight some of the important issues that • interface requirements.
should be considered when preparing those documents.
Often these obligations would be documented in the
Again, it should be noted that regardless of the type of schedule of scope of services.
project or the specific risk profile, it is still essential for the
Principal to clearly articulate the requirements it has Stage 5: Prepare the Principal’s
developed during stages 1 to 3 in both the Design Brief requirements for the D&C contract
and the Principal’s requirements. This must be in a
manner that is consistent with the general conditions and It is fundamental to the success of the project to identify
clearly describes the obligation of the respective parties. precisely what must be designed and then constructed by
the D&C Contractor and the performance criteria that must
Stage 4: Prepare the design brief for the be satisfied. The particulars of that essential element of
the procurement process must be contained in the
consultancy agreements
Principal’s requirements, including the requirements of
Using the information compiled during stages 1 to 4, the external parties identified in stages 1 and 2.
Principal should prepare and include a Design Brief in the
The level of detail contained in the Principal’s
Consultancy Agreements. This is in addition to the contract
requirements will vary depending on the timing of its
documents which specify the actual scope of services and
preparation and the extent of design completed prior to the
deliverables for each of the Design Consultants.
formation of the D&C Contract. Clearly, the later the
It is in this Design Brief that the Principal articulates its Principal’s requirements are prepared, more are the details
goals and objectives, including its time, cost, quality and that can be incorporated. The preparation of the Principal’s
other requirements and how the Design Consultants are to requirements during this stage is an excellent test to
comply with those requirements so that the Principal can ascertain whether the Principal is in a position to sensibly
measure and enforce the Design Consultant’s obligations. articulate its requirements for the project. If it cannot
describe its requirements with certainty in the Principal’s
requirements, then logically the contract procurement
process has not reached a point where the D&C Contract
can sensibly be distributed to tenderers.
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The contents of the Principal’s requirements will obviously • quality of equipment and materials. For example, in a
vary depending on the nature of the project, the specific commercial or residential building project, the standard
scope of work and risk profile. The information compiled of finishes, floor coverings and sound proofing should
during stages 1 to 4 will form the basis of which the be specified, as should the telecommunications and
Principal’s requirements will be further developed and security requirements and ecologically sustainable
finally articulated. For instance, the Design Brief referred development (ESD) requirements. However, particular
to in stage 4 will be further developed with the assistance care must be taken if the Principal intends to prescribe
of the Design Consultants and form an integral component a product. Prescribing specific items can lead to
of the Principal’s requirements for the D&C Contract. difficulties in enforcing the D&C Contract in relation to
fitness for purpose and design warranties. Rather than
Examples of key aspects to be considered by the Principal the Principal specifying a particular product, it may be
and articulated in the Principal’s requirements for any D&C preferable for it to describe the type, appearance and
Contract include: purpose of the product. The reason for this is, if the
• a list of the Principal’s goals and objectives for the Principal prescribes a specific product and a defect is
project. The emphasis in this regard, and at this critical found in that product after it is installed, then it will
stage, is on providing detailed and measurable have difficulty rejecting the product on a fitness for
objectives, rather than general objectives or purpose basis.
motherhood statements. The question should be which party is to be responsible if
• the obligations that must be satisfied by the Principal the material or equipment ultimately does not perform as
under separate arrangements with external parties that required? If the Principal wants the answer to be the D&C
are to be passed on to the D&C Contractor must be Contractor, then it should not tell the D&C Contractor what
specified in detail. These obligations will include specific product to use. The types of description that
development and planning approvals, environmental should be avoided include sizes, thickness, strength,
approvals, agreements for lease, sale agreements, suppliers and models. Of course, if the Principal has a
agreements with adjacent lands and the requirements specific requirement and wishes to use a particular
of banks and Lenders. Fundamentally, in preparing the product and in turn take the risk of that product performing,
Principal’s requirements, the Principal must ask itself then it must clearly set out that requirement. For a
whether it has procured the D&C Contractor to fulfil all residential development project, for example, it will often
of the Principal’s own relevant obligations with be in the interests of both parties to carefully draft a
external parties. mechanism in the D&C Contract providing for the
construction of a prototype villa or apartment so that
• the Principal’s future operational expenditure. The issues of specified finishes and design functionality can be
Principal must ensure that its requirements, in terms of worked through at an early point in the design and
operational expenditure once the project is taken over construction process.
by it, including future concession or off-take
agreements and arrangements with service and utility • Separable portions, milestones, Programme and
providers, are also specified. This is important, not only staging requirements for the project, particularly where
in relation to interface obligations, but also because the development is to occur adjacent to operating
reduced capital expenditure through design and buildings and/or facilities or the Principal’s external
selection of materials, which might be a source of obligations dictate staged completion.
savings for the D&C Contractor, will often only be • The scope and extent of the works to be clearly
achieved at the expense of increased future delineated. The Principal must consider whether some
operating expenses. These are, of course, borne by of the works will be carried out by others and then
the Principal. consider the critical issue of the interaction and
• relevant industry standards and criteria. However, interface between those parties. This is a common
considerable care must be taken before specifying a cause of disputes and variation claims for delay.
benchmark existing project or using an existing • The scope of the D&C Contractor’s design obligations
Principal’s requirements document for another project and the existing design prepared by the Design
as the required standard to be achieved. It will be rare Consultants. An issue that is peculiar to this type of
that any other project will encapsulate and be D&C Contract delivery method involving the novation
consistent with all of the Principal’s specific of the Principal’s Design Consultants to the D&C
requirements of its project. The Principal must also Contractor is the status of the design work completed
consider the commercial implications of using an by those Design Consultants on behalf of the Principal
existing project to set a minimum benchmark. The D&C (Existing Design). The purpose for using a D&C
Contractor will inevitably assess the risk of uncertainty Contract delivery process is that the D&C Contractor is
between the actual required standard and the minimum solely responsible for the final design of the project
benchmark and pass this cost onto the Principal in the under the D&C Contract. However, a key question is,
contract price. ‘What happens to the Existing Design?’ If the Existing
Design contains elements that the Principal absolutely
must have included in the final design, then these
elements must be transferred to the Principal’s
requirements.
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The Existing Design can be considered as a work in • physical limits of the works including a description of
progress that the EPC Contractor can develop and change the site boundaries and any connection points for
as the final design development proceeds. services and access restrictions
However, to avoid disputes over design responsibility, the • a list of exclusions that have not been included in the
general conditions and Principal’s requirements must be D&C Contractor’s scope of work
consistent on this point. The general conditions should
• interface obligations with existing plant and/or auxiliary
provide that the D&C Contractor warrants and takes
works
responsibility for any Existing Design included in the
Principal’s requirements, so that the Principal can enforce • interaction between the D&C Contractor and other
the D&C Contractor’s overall design obligations and Contractors
fitness for purpose warranties. It is possible to place
overall design responsibility on the D&C Contractor while • interface obligations with adjoining property Principals
still ensuring the Principal retains control of the design • plant or material to be supplied by the Principal
process by incorporating carefully drafted design review
regimes. • training the D&C Contractor must provide to Principal’s
personnel
Alternatively, it is also possible to prohibit any changes by
the D&C Contractor to the Existing Design, but this • future Operator/Principal access requirements for
removes a fundamental commercial benefit to the D&C maintenance and repairs
Contractor to value engineer its design and make • permits or approvals that the D&C Contractor is
allowance in its price for the cost savings it believes it can required to obtain
achieve by developing the design to suit its construction
methods. It also potentially limits the design promises • an exclusive list of Principal’s responsibilities such as
made by the D&C Contractor and must therefore be obtaining planning approvals and supplying facilities,
considered in that context. This balancing act between the equipment or materials
requirements of the Principal to control the design and the • project-safety, quality and coordination policies, plans
commercial driver of the D&C Contractor is a very or procedures which the D&C Contractor is required to
important dynamic to understand and should be foremost comply with or prepare
in the Principal’s mind when selecting the project delivery
method during stage 3 and then when deciding on the • approved working hours and any requirements or
level of detail to be included in the Principal’s restrictions as to working hours
requirements.
• defect rectification: Period and access requirements
• Design documents and maintenance manuals to be
• subcontractor and supplier warranties for specific
provided by the D&C Contractor, including the form of
works or materials or services for which the Principal
the documents.
wants a direct ongoing contractual relationship with the
• Performance requirements for the works identified subcontractor, manufacturer or supplier in relation to
during stages 1 to 4. These are essential for a D&C performance and defect rectification.
Contract arrangement and they must be exhaustively
specified. For example, the Principal’s requirements for Stage 6: Global review of the D&C
the construction of a high-rise building may include contract documents
detailed performance requirements for air conditioning,
lifts and other services, net lettable areas, Ideally, the Principal’s requirements and the general
environmental ratings, apartment sizes and car park conditions should not be prepared in isolation.
numbers. These performance requirements should be Unfortunately they often are, despite the significant costs
carefully and thoroughly described, along with how to the Principal in procuring the commercial, technical and
satisfaction of those requirements will be determined. legal expertise required to perform this task. It is also not
Consideration must be given to: uncommon for the Principal’s requirements or documents
prepared by the D&C Contractor (Contractor’s Proposal) to
• designing for whole of life requirements and the be simply attached to the general conditions and
method of design review and approval distributed as the tender documents without a thorough
• specific fitness for purpose requirements and a global review of all components of the D&C Contract.
description of how satisfaction will be determined by In practice the contract documentation, including the
the Principal Principal’s requirements, will continue to evolve during the
• compliance with technical standards and specifications tender process and negotiations until the D&C Contract is
executed. However, failing to undertake a review of the
• performance guarantees and performance liquidated entire D&C Contract prior to going to tender increases the
damages (if any) risk of ambiguity and uncertainty existing between the
Principal’s requirements and the general conditions and
• the completion, testing and commissioning
various components of the Principal’s requirements. This
requirements. These include Principal supplied
will inevitably lead to a disputes and costly variations.
resources (both personnel and materials),
responsibility for output (which can be blurred if the
Principal provides resources), provision of input
material (including quantity and quality) and provision
for delayed testing if input material is not available.
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The Principal cannot rely on inconsistencies or ambiguities
being identified or raised by the D&C Contractor during the
negotiation process. In fact, often Contractors will
specifically look for ambiguity in contract documents
during the tender process and internally identify ways to
take advantage of any uncertainty during the performance
of the works. For the same reason, the Principal should
not include documents in the D&C Contract which have
been prepared by the D&C Contractor, without a thorough
review for consistency with the Principal’s requirements
and general conditions.
Another common cause of uncertainty is the use of
unclear and inconsistent language in the Principal’s
requirements. The drafting must definitively articulate the
Principal’s requirements and the obligations of the parties.
Using general motherhood statements or legalistic
wording, rather than simple plain English drafting, will not
only lead to uncertainty, costly disputes and/or variations,
but also makes it more difficult and time consuming for the
Principal’s project delivery team to determine what is to be
constructed and to administer and enforce the D&C
Contract.
The following paragraph, taken from an existing D&C
Contract used on an actual project, provides an example
of drafting that fails to definitively describe the required
scope, standard or duration of the D&C Contractor’s
design obligations in relation to designing temporary
facilities and services:
The Contractor shall provide good quality design services
and the like for temporary facilities necessary which may
be in use for a few years pending completion of final
permanent building works or infrastructure/roads to the
project and which will need to be compatible with the
buildings in normal use for that time.
The D&C Contractor’s obligations under the above
paragraph are uncertain. An alternative drafting style that
more definitively describes the D&C Contractor’s
obligations might be:
The Consultant must design all temporary facilities
required at the site to ensure that all services to existing
buildings are maintained for the duration of the project and
for a period not less than three years after the completion
of the project. The temporary facilities must be compatible
and, fully interface with, all existing buildings at the site.
While it is acknowledged that there are usually ambitious
deadlines and budget restrictions imposed by Principals in
relation to the contract procurement process, the global
review, irrespective of the contract value, is critical. The
review must combine input from the Principal’s project
management team, technical consultants and legal
advisors. It must also be centrally managed by personnel
with the requisite skill set and combined expertise in
contract procurement, contract administration, project
delivery and legal drafting.
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How to contact us
If you have any questions about this paper, please contact the editor, Damian McNair, Partner, Energy Transition.
PwC Australia has a dedicated Energy Transition business, consisting of a hub of 132 multidisciplinary and highly-skilled
experts helping to facilitate Australia’s successful transition to a decarbonised economy by 2050. We are helping accelerate
our clients through the energy transition and their related ESG priorities as Australia moves to a net zero economy.
Damian McNair Varya Davidson
PwC | Partner, Energy Transition PwC | Partner, Energy Transition
M: +61 421 899 231 M: +61 478 303 103
E: damian.mcnair@pwc.com E: varya.davidson@pwc.com
LinkedIn LinkedIn
Luke Westmore Rhiannon Hough
PwC | Partner, Energy Transition PwC | Director, Energy Transition
T: +61 402 074 040 M: +61 403 514 687
E: luke.westmore@pwc.com E: rhiannon.hough@pwc.com
LinkedIn LinkedIn
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