An EPC (Engineering, Procurement and Construction) contract puts the design, sourcing and construction of a project in the hands of one contractor, usually for a fixed price and within a fixed completion period. Employers often prefer this arrangement because it gives them a single point of accountability rather than requiring them to coordinate with several different vendors.
That single-point-of-responsibility structure often creates an assumption that if something goes wrong, it is automatically the contractor's problem. In practice, that is not always true. Whether a delay or a cost overrun stays with the contractor, or shifts to the employer, depends on what actually caused it, and on how the contract dealt with that particular risk when it was drafted.
What Can Put a Party at Risk?
The starting point is always the contract itself, not who seems more at fault on the surface. Not every delay or cost increase falls on the same side. It depends on where the contract placed that particular risk.
A contractor is more likely to end up bearing the cost where it underestimated time or material costs while pricing the project, where the delay traces back to its own planning or execution failures, or where it simply failed to notify the employer within the period the contract required.
The employer's exposure tends to come from a narrower set of situations, but they matter just as much in practice: delay in handing over the site, or delay in approvals that were the employer's job to secure. A force majeure event can also shift the cost back to the employer, but only if the contract actually recognises that event as a valid ground for relief, not simply because something unexpected happened. Instructed variations are another common source, particularly when additional work is asked for without any corresponding change to price or timeline.
What Does the Law Say?
None of this is left purely to how the clause is worded. Sections 32 and 56 of the Indian Contract Act, 1872 govern contingent contracts and frustration respectively, and in Energy Watchdog v. CERC, the Supreme Court held that a party cannot fall back on Section 56 to claim frustration once the contract already has a force majeure clause covering the same ground. The judgment also addressed cost increases directly: performance is not excused just because it became more expensive, unless the contract itself allocates that risk differently.
How Can the Risk Be Reduced?
Most EPC disputes do not start with a badly written clause. They start with a clause that read fine at signing and only showed its gaps once an actual delay or cost increase came up.
A few questions are worth settling before execution begins, rather than after a dispute has already taken shape: what will count as a valid ground for extending the completion date, whether cost escalation gets shared through a price-adjustment mechanism or sits with the contractor alone, and what notice period applies before a party can claim relief for delay or force majeure. Site conditions are worth flagging separately, since disputes over who takes the risk if the ground turns out different than expected come up often enough to deserve their own clause rather than being folded into a general risk-allocation provision.
Liquidated damages deserve a specific mention. Under Section 74 of the Contract Act, simply writing a number into the contract does not guarantee a court will enforce it; the figure has to reflect a genuine pre-estimate of loss.
The FIDIC Silver Book is the reference point most international EPC contracts are built around, and it addresses extension of time, variations and force majeure through dedicated provisions. Even parties drafting outside the FIDIC framework tend to check their contract against it, mainly to see whether the major risk areas have actually been addressed somewhere.
None of this removes the possibility of delay. It simply determines, in advance, who is left holding the cost of it. A legal review before signing, or before a major variation is instructed, is considerably less costly than resolving the same dispute after it has already taken shape.
Disclaimer: The content of this article is intended to provide general guidance on the subject matter. Specialist advice should be sought about your specific circumstances.