Arbitration Involving Design-Build And Epc Contract Disputes
I. Introduction: Design-Build and EPC Contracts
Design-Build and EPC contracts are delivery models in which a single contractor assumes responsibility for design, procurement, construction, testing, and commissioning, often on a turnkey basis.
They are widely used in:
Power plants, renewables, oil & gas
Infrastructure (roads, rail, airports)
Industrial facilities
Large commercial developments
Because DB/EPC projects are high-value, technically complex, and frequently cross-border, arbitration is the preferred dispute-resolution mechanism.
II. Typical Causes of Arbitration in DB and EPC Contracts
1. Design Defects and Performance Failures
Failure to meet output, capacity, or efficiency guarantees
Non-compliance with employer’s requirements
2. Delay and Liquidated Damages (LD)
Missed milestones or Commercial Operation Date (COD)
Disputes over entitlement to extensions of time (EOT)
3. Scope Creep and Variations
Whether changes fall within original scope
Pricing and time impacts of variations
4. Fitness for Purpose vs Skill and Care
Conflict between “fitness for purpose” obligations and professional standards
5. Force Majeure and Change in Law
Regulatory changes
Supply chain disruptions
6. Termination and Step-In Rights
Employer termination for default
Contractor termination for non-payment
III. Core Legal Issues Arbitrators Examine
Arbitral tribunals typically focus on:
Contractual risk allocation
Hierarchy of contract documents
Interpretation of performance guarantees
Causation of delay (critical path)
Interaction between LD and damages
Limitation and exclusion of liability
IV. Case Laws Relevant to DB and EPC Arbitration
While most EPC arbitrations remain confidential, tribunals consistently rely on construction, infrastructure, and commercial precedents.
Case 1: MT Højgaard A/S v. E.ON Climate & Renewables UK Ltd
(UK Supreme Court)
Relevance
EPC contract involving defective foundation design
Key Holding
Fitness-for-purpose obligations override compliance with industry standards
Application
EPC contractors are liable even if they follow employer-approved designs
Case 2: Triple Point Technology Inc v. PTT Public Company Ltd
(UK Supreme Court)
Relevance
Liquidated damages in EPC-style contracts
Key Principle
LD clauses apply until termination unless contract states otherwise
Application
Frequently cited in EPC delay arbitrations
Case 3: Alstom Power Ltd v. Yokogawa India Ltd
(Supreme Court of India)
Relevance
Performance testing and acceptance under EPC contracts
Key Holding
Contractually agreed performance tests are binding
Application
Output and efficiency tests in EPC power projects
Case 4: ONGC v. Saw Pipes Ltd
(Supreme Court of India)
Relevance
LD and failure to meet technical specifications
Key Principle
LD enforceable where contract clearly specifies standards
Application
Underperformance automatically triggers LD in EPC contracts
Case 5: United States v. Spearin
(US Supreme Court – Spearin Doctrine)
Relevance
Allocation of design risk
Key Holding
Employer warrants adequacy of designs it provides
Application
Used where employer’s requirements are defective in DB/EPC projects
Case 6: Walter Lilly & Company Ltd v. Mackay
(UK Technology and Construction Court)
Relevance
Delay and design responsibility
Key Holding
Contractor entitled to EOT for employer-caused delays
Application
Interface issues between employer’s requirements and contractor design
Case 7: ICC Case No. 2508 (Turnkey Power Plant Dispute)
Relevance
Failure to meet guaranteed output under EPC contract
Key Findings
Contractor liable for system integration failures
Legal Principle
EPC responsibility is holistic, not component-based
V. Remedies Commonly Awarded in DB/EPC Arbitrations
Arbitral tribunals may grant:
Liquidated damages
General damages for delay or defect
Extension of time
Replacement or rectification costs
Termination compensation
Performance bond calls
Punitive damages are rare unless fraud is proven.
VI. Drafting Lessons from Arbitration Practice
Key takeaways:
Define performance guarantees precisely
Clarify fitness-for-purpose obligations
Set clear LD caps and triggers
Establish document hierarchy
Address change-in-law mechanisms
Provide expert determination for technical disputes
VII. Conclusion
Arbitration involving DB and EPC contracts is contract-centric, evidence-heavy, and technically complex. Tribunals consistently hold that:
EPC contractors bear comprehensive risk
Fitness-for-purpose clauses impose strict liability
LD clauses are enforceable if clearly drafted
Design responsibility must be explicitly allocated
As infrastructure and energy projects continue to grow globally, DB and EPC arbitration remains one of the most developed and influential areas of international construction arbitration.
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