July 20, 2022
Contract Language: Defining Standard of Care and Good Industry Practice
In the engineering and construction industry, owners put language in EPC and EPCM contracts that defines the standards of care and excellence, good industry practice, and required skills and capacity to perform required of contractors. Contractors then represent that they will comply with these requirements.
Here is an example of “Standard of Care” contract language:
The EPCM Contractor shall perform the Services with the level of professional skill, care, competence, judgment, and diligence as would reasonably and ordinarily be expected to be exercised by duly qualified and experienced professional engineering, procurement, and construction management firms experienced in international projects of a similar nature and magnitude to the Project and in the performance of Services identified herein.
Here is an example of “Standard of Excellence” contract language for engineering work:
The EPC Contractor shall strive for engineering excellence by applying economical methods, materials, and designs (including safe designs) and their incorporation into the Project. Emphasis shall be placed on safe, environmentally conscious, cost-effective, and efficient Project operations, as well as initial capital and construction costs.
An example of “Good Industry Practice” contract language follows:
Good Industry Practice means the practices, methods, techniques, designs, standards, skills, diligence, efficiency, reliability, and prudence which are generally and reasonably expected from a reasonably skilled and experienced Contractor engaged in the same type of undertaking as envisaged under this Contract and which would be expected to result in the performance of its obligations by the Contractor in accordance with this Contract, Applicable Laws, and Applicable Permits in a reliable, safe, economical, and efficient manner.
An example of “Required Skills and Capacity to Perform” contract language follows:
The Contractor shall have the required skills and capacity to perform, and shall perform, the Work in a professional manner utilizing sound engineering, procurement, and construction principles, current management information systems and electronic communication systems, project management and supervisory procedures in accordance with the Agreement, Engineering Record, and accepted practices in the industry.
It is largely agreed that a contractor’s multiple design changes and failures to perform its engineering, procurement, project management, and construction management contractual responsibilities, as defined by the example contract clauses above, adversely affects the time and cost to perform and complete an engineering and construction project. When faced with significant project delays and cost increases, owners look to the EPC or EPCM’s performance in meeting the contract requirements that these types of contract clauses set forth. The challenge is to determine if deviations in the contractor’s performance are serious and substantial deviations from these requirements and are in reckless disregard of or indifference to foreseeable harmful consequences to the owner. Also, an analysis is required to determine if the contractor’s failure to fulfill its representations and contractual obligations is far removed from the performance expected of a duly qualified and experienced professional engineering, procurement, and construction management firm experienced in projects of a similar nature and magnitude to the project and in the performance of services that are the same as or similar to the services that the contract requires.
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