This guide provides a structured framework for investors, developers, lenders, and Owner’s Engineers involved in EPC contracting for energy, heavy-industry, high-tech, and HV/MV infrastructure projects in Serbia. It reflects the realities of Serbia’s regulatory environment, logistics constraints, supply-chain dependencies, construction-market capacity, and international lender expectations.
1. EPC Negotiation Checklist — Serbia Energy & Heavy Industry Projects
(Clarion Engineers – clarion.engineer)
A. Contract Scope & Structure
1. Single-Point Responsibility Confirmed
Contractor assumes full responsibility for engineering, procurement, construction, installation, testing, commissioning, and handover.
2. Lump-Sum Turnkey Price
Price is fixed, with clearly defined conditions for adjustments (limited and verifiable).
3. Complete Technical Scope
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Design basis + all disciplines
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OEM equipment supply
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Civil, mechanical, electrical works
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SCADA, automation, control systems
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Grid-connection works (if included)
4. Interface Management Defined
Owner vs. EPC responsibilities, especially regarding land, permits, utilities, and grid connection.
B. Programme, Milestones & Time Control
5. Binding Schedule
Key milestones: NTP, engineering freeze, equipment delivery, installation, mechanical completion, commissioning, COD.
6. Delay Liquidated Damages (DLDs)
Daily/weekly rates reflect real financial exposure.
7. Extensions of Time (EOT)
Only for strict, objectively verifiable events.
8. Schedule Risk Mitigation
Clear contractor obligations to recover delays at no cost to the investor.
C. Performance Guarantees
9. Guaranteed Output / Capacity / Efficiency
Tailored to asset type (solar/WPP output, transformer loading, turbine efficiency, industrial line throughput).
10. Performance Liquidated Damages (PLDs)
Financially meaningful, escalated for shortfall severity.
11. Performance Testing Protocol
Binding procedures, climatic corrections, data measurement, independent verification rights.
D. Security Package
12. Performance Bond
Typically 5–15% of contract value, callable on first demand.
13. Advance Payment Guarantee
Required for any advance payments.
14. Parent Company Guarantee (PCG)
Mandatory when EPC contractor is an SPV or limited-asset subsidiary.
15. Retention Mechanism
Cash retention or bank guarantee maintained through the DLP.
E. Insurance Framework
16. Construction All-Risks (CAR) Insurance
Covers works, equipment, temporary structures, natural hazards.
17. DSU / Delay in Start-Up Insurance
Mandatory for energy plants and industrial facilities.
18. Marine Cargo & Transit Insurance
Critical due to Serbia’s import routes and heavy-component logistics.
19. Third-Party Liability Insurance
Coverage aligned with project risk profile.
20. Investor as Co-Insured
Mandatory naming and rights of access.
F. Defects Liability & Warranties
21. Defects Liability Period (DLP)
Minimum 24 months for energy assets; longer for heavy industry.
22. Latent Defects Period
Typically 3–10 years for structural, design, or hidden defects.
23. Spare Parts & OEM Warranty Alignment
Full back-to-back coverage; onsite response times.
24. Rectification Rights & Investor Step-In
Investor may remedy defects at contractor’s cost if contractor fails to act.
G. Change Management & Claims
25. Variation Procedure
Clear rules for initiating, approving, and pricing changes.
26. Strict Claims Deadlines
Time-bar clauses prevent opportunistic contractor claims.
27. Employer-Caused Delay Clarification
Permitting, land access, and utility interfaces must be explicitly defined.
H. Commercial & Financial Terms
28. Payment Schedule
Milestone-based, with holdbacks for uncompleted deliverables.
29. Currency, Inflation & FX Risk Allocation
Defined mechanisms for imported equipment vs. local costs.
30. Tax, Duty & Customs Responsibility
Contractor typically assumes import responsibilities and risks.
I. Termination & Dispute Resolution
31. Investor Termination for Contractor Default
Including insolvency, chronic delay, and performance failure.
32. Cost-to-Complete Recovery
Contractor liable for excess cost of replacement contractor.
33. Dispute Resolution Mechanism
Expert determination + arbitration; Serbian court jurisdiction only when appropriate.
J. Serbia-Specific Critical Items
34. Grid Connection Responsibility Alignment
If grid works are excluded, EPC must coordinate technically with the operator.
35. Local Permitting Timeline Integration
Permits, cadastre issues, access roads, environmental approvals.
36. Seismic, Hydrological & Geotechnical Risk Allocation
Especially relevant for dams, substations, industrial plants.
37. Local Subcontractor Reliability
Back-to-back warranties, QC oversight, schedule controls.
38. Import Logistics Risk
Heavy-cargo transport corridors, customs clearance responsibilities.
39. Political & Regulatory Change Risk
Mitigation through change-in-law clauses or shared-cost mechanisms.
2. Clarion Engineers – EPC Project Risk Matrix (Serbia)
1. Design Risk
Impact: High — design errors propagate into construction defects, delays, and performance shortfalls.
Likelihood: Medium in Serbia due to local–foreign design interface.
Owner: EPC Contractor.
Mitigation: Full design responsibility; OEM engagement; independent design reviews by Clarion.
2. Permitting & Land Risk
Impact: High — delays often weeks to months.
Likelihood: Medium–High.
Owner: Investor / Government, but EPC must be coordinated.
Mitigation: Clarion-led early permitting roadmap; interface obligations defined in contract.
3. Equipment Supply & Logistics Risk
Impact: High — imported equipment delays cripple schedule.
Likelihood: Medium–High.
Owner: EPC Contractor.
Mitigation: Marine/cargo insurance; defined Incoterms; milestone-linked delivery obligations.
4. Performance Risk (Technical Output)
Impact: Very High — affects revenue model.
Likelihood: Medium.
Owner: EPC Contractor.
Mitigation: Clear performance guarantees + PLDs; third-party witnessed testing.
5. Construction Delay Risk
Impact: High; affects COD and financing.
Likelihood: High in Serbia (grid works, weather, subcontractors).
Owner: EPC Contractor except for Employer-caused events.
Mitigation: DLDs; strict EOT rules; schedule recovery obligations.
6. Defects & Latent Defects
Impact: High; long-term reliability risk.
Likelihood: Medium.
Owner: EPC Contractor.
Mitigation: DLP ≥ 24 months; latent defects ≥ 5 years; OEM warranty alignment; retention.
7. Grid-Connection & SCADA Risk
Impact: Very High in energy projects.
Likelihood: Medium–High.
Owner: Shared; EPC must coordinate.
Mitigation: Early HV/MV studies; compliance testing; Clarion oversight.
8. Regulatory / Change-in-Law Risk
Impact: Medium–High.
Likelihood: Medium.
Owner: Investor / Government.
Mitigation: Shared-cost mechanism; exclusion for contractor negligence.
9. Currency, Inflation & Price Escalation Risk
Impact: High during long procurement cycles.
Likelihood: Medium.
Owner: EPC Contractor for lump-sum price; limited adjustment allowed.
Mitigation: Clear currency/FX clauses; material escalation formula optional.
10. HSE & Environmental Risk
Impact: Very High.
Likelihood: Medium.
Owner: EPC Contractor.
Mitigation: HSE plan approval; training; audits; penalties for violations.
11. Insurance Gaps
Impact: Very High.
Likelihood: Medium.
Owner: EPC Contractor (procurement) + Investor (acceptance).
Mitigation: CAR, DSU, TPL, transit insurance; investor as co-insured.
12. Local Subcontractor Performance Risk
Impact: Medium–High.
Likelihood: High.
Owner: EPC Contractor.
Mitigation: Back-to-back contracts; QC audits; advance approval of subcontractors.
13. Payment and Cash Flow Risk
Impact: Medium.
Likelihood: Medium.
Owner: Investor & EPC.
Mitigation: Milestone-based payments; strict documentation; advance payment guarantees.
14. Termination / Replacement Contractor Cost Risk
Impact: Very High.
Likelihood: Low–Medium.
Owner: EPC Contractor.
Mitigation: PCG; performance bonds; clear termination triggers; cost-to-complete rights.
15. Force Majeure & Supply Chain Shock
Impact: High.
Likelihood: Increasing.
Owner: Shared.
Mitigation: FM definition clarity; mitigation plan; inventory strategy; flexible sourcing.