E.P.C. Bonding Requirements
E.P.C.: Engineering, Procurement, and Construction
In the E.P.C. negotiations, and that is in the negotiation of the engineering, procurement, and construction contract, one of the very important commercial aspects is the requirement of the contractor to bond around mechanics liens and the potential for mechanics liens. In the case where a potential disagreement can occur between a contractor and a subcontractor, one of the rights that a subcontractor has is to record a lien in the county records where the project is located. Frequently when this occurs, this causes serious implications for the project. It can raise issues as far as priority for the loan financing, loan agreements, and trust deed. It can also put the project into a default.
Normally what we recommend is that there be very stringent and clear bonding requirements in your E.P.C. contract, so that in the event of a recording of this nature, then there is a protocol that immediately can take place for the contractor to bond around the lien during the period of time that the contractor is attempting to negotiate a resolution of the outstanding invoice with the subcontractor.
EPC Contractor has to execute and deliver the project within an agreed time and budget, commonly known as a Lump Sum Turn Key (LSTK) Contract.