EPC Contracts and Completion Guarantees
The construction phase is the highest risk period in Project Finance. This document details the technical provisions of the EPC Contract.
To protect lenders, the contract must be "Lump Sum" and "Date Certain."
It examines the role of Liquidated Damages (LDs) for delays or performance shortfalls. If the project fails to meet specific "Performance Guarantees" (e.g., a power plant not reaching its rated megawatt output), the contractor must pay LDs to compensate the SPV for lost revenue. The document also describes "Physical Completion" versus "Financial Completion," and the "Longstop Date," after which a failure to finish the project triggers a technical default.
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