The "Administrative Measures for the Engineering, Procurement, and Construction (EPC) of Housing Construction and Municipal Infrastructure Projects" (hereinafter referred to as the "EPC Management Measures" or the "New EPC Regulations") were promulgated on December 23, 2019, and officially implemented on March 1, 2020. This long-awaited "New EPC Regulations" carries many beautiful expectations from all parties involved in the EPC market: the owner expects the "EPC contractor to be fully responsible," taking on the responsibility for "quality," "safety," "schedule," and "cost," while the EPC contractor, based on the market economic principle of "risk and return being proportional," expects more profit margins.

However, just as the new EPC regulations were issued but not yet officially implemented, at the beginning of the new year in 2020, a new type of coronavirus-infected pneumonia epidemic surged, and all 31 provinces and cities in the country have launched a first-level response to major public health emergencies. The World Health Organization (WHO) has determined that the epidemic constitutes a "Public Health Emergency of International Concern." With the continuation of the epidemic, the national and local governments continue to introduce prevention and control policies, mainly extending holidays and restricting the movement of people. Some provinces and cities have had to take extreme measures such as closing cities and roads to control the spread of the epidemic. This has had a significant impact on the labor-intensive and capital-intensive construction industry. Difficulties exist in the resumption of work, material procurement, and other contract performance, and corporate costs may become uncontrollable as a result.

Does "EPC contractor fully responsible" mean the EPC contractor "bears all" the construction period and a "fixed" total price? Then why is the risk of force majeure entirely borne by the construction unit?

(I) Relevant Provisions of "EPC Contractor Fully Responsible"

Currently, the industry is hotly discussing the many highlights of the "EPC Management Measures" that will be implemented on March 1, 2020. Among them, "EPC contractor fully responsible" is undoubtedly one of the highlights. In this regard, the "EPC Management Measures" clearly define "engineering general contracting" in the general provisions: "The engineering general contracting referred to in these measures refers to the contracting unit According to the contract signed with the construction unit, the implementation of general contracting for the design, procurement, construction, or design and construction stages of the project, and the comprehensive responsibility for the quality, safety, construction period, and cost of the project. Under the overview of "EPC contractor fully responsible" in the general provisions, the specific provisions of the "EPC Management Measures" also make regulations on quality, safety, construction period, and cost:

1. Regarding quality: "EPC Management Measures" Article 22 The EPC contractor shall be responsible for the quality of all construction projects it undertakes, and the subcontractor shall be responsible for the quality of the subcontracted project. Subcontracting does not exempt the EPC contractor from the quality responsibility for all construction projects it undertakes. The EPC contractor and the EPC project manager shall bear lifelong quality responsibility in accordance with the law.

2. Regarding safety: "EPC Management Measures" Article 23 The EPC contractor shall be fully responsible for the safety production of the project within the scope of the contract. The subcontractor shall comply with the safety production management of the EPC contractor. If the subcontractor fails to comply with the management and causes a production safety accident, the subcontractor shall bear the main responsibility. Subcontracting does not exempt the EPC contractor from the safety responsibility.

3. Regarding the construction period: "EPC Management Measures" Article 24 The construction unit shall not set unreasonable construction periods or arbitrarily compress reasonable construction periods. The EPC contractor shall be fully responsible for the construction period in accordance with the contract, control and manage the overall progress of the project and the progress of each stage, and ensure the completion of the project on schedule.

4. Regarding cost: "EPC Management Measures" Article 16 The EPC of enterprise investment projects should adopt a lump-sum contract, and the EPC of government investment projects should reasonably determine the contract price form. If a lump-sum contract is adopted, the total contract price will generally not be adjusted except for the circumstances where the contract stipulates that adjustments can be made.

(II) Interpretation: "Bearing All" the Construction Period and Total Price is a "One-Sided Love" for "EPC Contractor Fully Responsible"

In recent years, the state has repeatedly issued documents to vigorously promote the EPC model, hoping to cultivate the domestic EPC contractor market as soon as possible. In the process of promoting this model, many people, especially project owners, when discussing the advantages of EPC, are accustomed to pushing it to "bear all" the construction period and "fix" the total price. They believe that as long as this model is adopted, they can obtain projects that meet the owner's requirements within a foreseeable period with pre-controllable investment. In fact, whether it is the agreement of the general terms in the "Demonstration Text of Construction Project EPC Contract (Trial Implementation)" (GF-2011-0216) (which can be regarded as industry practice) or the latest "EPC Management Measures", there is no such absolute provision. The so-called "bearing all" the construction period and total price is actually a "one-sided love" when people summarize the characteristics of the model, or even a misunderstanding.

First, adjusting the construction period according to the contract is the norm

"EPC Management Measures" Article 24 stipulates "The EPC contractor shall be fully responsible for the construction period in accordance with the contract, control and manage the overall progress of the project and the progress of each stage, and ensure the completion of the project on schedule." The EPC contractor is fully responsible for the construction period and ensures the completion of the project on schedule, which has a prerequisite, that is, "in accordance with the contract." So, let's take a look at the currently commonly used "Demonstration Text of Construction Project EPC Contract (Trial Implementation)" (GF-2011-0216), how exactly are the clauses for allowing the extension of the construction period or signing the construction period stipulated:

1. Article 1.5.4: After the base date, if the contractor's expenses increase due to the promulgation of new mandatory national norms and standards, the employer shall reasonably increase the contract price, and if the critical path construction period is delayed, the employer shall reasonably extend the construction period.

2. Article 2.1.5: The employer shall bear the increased costs to the contractor caused by the suspension due to the employer's reasons, and the completion date shall be postponed accordingly if the critical path is delayed.

3. Article 4.1.3 stipulates: Adjustment of the project schedule: If the following situations occur, the completion date shall be postponed accordingly, and the project schedule shall be adjusted:

(1) The project basic data and on-site obstacle data provided by the Employer in accordance with Clause 5.2.1 are untrue, inaccurate, incomplete, or untimely, or the advance payment amount agreed in Clause 14.3.1 and/or the advance payment time agreed in Clause 14.3.2 are not paid, resulting in the delay of the design commencement date agreed in Clause 4.2.2, or the delay of the procurement commencement date agreed in Clause 4.3.2, or the delay of the construction commencement date agreed in Clause 4.4.2.

(2) According to the agreement in Clause (2) of Clause 4.2.4, the audit meeting time of a certain design stage is delayed due to the Employer's reasons.

(3) According to the agreement in Clause (3) of Clause 4.2.4, the approval time of the relevant design review department is longer than the time agreed in the contract.

(4) Other circumstances agreed in the contract that may extend the completion date.

It can be seen that the so-called comprehensive responsibility for the construction period and ensuring the on-time completion of the project by the EPC contractor still requires an extension when the above-mentioned contractual circumstances occur. As for how long the extension will be, it needs to be judged and adjusted in a timely manner according to the actual situation of the project. However, there is no doubt that almost every project will have such and other reasons for the need for an extension. In this case, "delayed" completion may be the "norm".

Second, the fixed total price is not a "one-off price", and price adjustment is the "truth"

Article 16 of the \"Engineering General Contracting Management Measures\" stipulates that: \"When a lump-sum contract is adopted, the total contract price shall generally not be adjusted except for the circumstances where the adjustment can be made as agreed in the contract.\" Similarly, let us look at what the commonly used \"Model Text of Construction Project Engineering General Contracting Contract (Trial)\" (GF-2011-0216) has agreed on price adjustments:

13.7 Contract Price Adjustment

Within 30 days after the occurrence of the following circumstances, both parties to the contract shall have the right to notify the other party or the supervisor in writing of the reasons for adjusting the contract price and the amount of adjustment. The reasonable amount confirmed by the Employer shall be used as the adjustment amount of the contract price, and the adjustment amount shall be paid or deducted when paying the current project progress payment. If one party fails to confirm or fails to raise amendments within 15 days after receiving the notice from the other party, it shall be deemed that it has agreed to the price adjustment. The contract price adjustment includes the following situations:

(1) After the contract is signed, Due to laws, national policies and industry regulations to be complied with Changes that affect the increase or decrease of the contract price;

(2) During the execution of the contract, Price adjustment announced by the engineering cost management department Involving an increase or decrease in the Contractor's input costs;

(3) Water outage, power outage, gas outage, road interruption, etc. due to non-Contractor reasons within one week , resulting in a cumulative work stoppage at the project site of more than 8 hours (the Contractor shall submit a report and provide verifiable proof and estimates);

(4) Increase or decrease in the change estimate approved by the Employer in the change procedure in Clauses 13.3 to 13.5;

(5) Adjustment of other items of increase or decrease agreed in this contract.

For items of increase or decrease not agreed in the contract, the Employer shall not be liable for adjusting the contract price, unless otherwise provided by applicable laws. The adjustment of the contract price does not include contract changes.

In fact, in addition to the above-mentioned items for adjusting the contract price, Design changes, procurement changes, and construction changes will all cause adjustments to the contract price.

In summary, interpreting "the general contractor is fully responsible" as "guaranteeing the construction period" and "fixed total price" is indeed a "unilateral" view of some people. Engineering general contracting is not a panacea for solving the delay in completion and overruns in settlement under the traditional construction general contracting model. The extension of the construction period and the adjustment of the contract price still need to be based on the facts. Of course, with the introduction of the new \"General Contracting Management Measures\", the state may update the \"Model Text of Construction Project Engineering General Contracting Contract\", but the author believes that no matter how the model text is adjusted, it will not be because the engineering general contracting model is adopted, it can achieve the effect of absolutely "guaranteeing" the construction period and "fixing" the total price.

The above-mentioned situations regarding the extension of the construction period and the adjustment of the total price are often caused by one party's factors, and the responsibility can generally be attributed according to the principle of fairness of who is responsible for it. However, when a situation that cannot be attributed to any party occurs, whether to extend the construction period and adjust the price involves the issue of risk sharing rules.

(1) Provisions on Risk Sharing in the \"General Contracting Management Measures\" and Model Text

While emphasizing that "the general contractor is fully responsible", the \"General Contracting Management Measures\" also stipulates the risk sharing rules for both the employer and the contractor:

Article 15 stipulates : \"Construction units and engineering general contracting units shall strengthen risk management and reasonably share risks.

The risks borne by the construction unit mainly include:

(1) The main engineering materials, equipment, and labor prices compared with the base price at the time of bidding, The part where the fluctuation range exceeds the range agreed in the contract ；

(2) Changes in contract prices caused by changes in national laws, regulations and policies;

(3) Changes in engineering costs and construction period caused by unforeseen geological conditions;

(4) Changes in engineering costs and construction period caused by the construction unit;

(5) Changes in engineering costs and construction period caused by force majeure.

The specific risk sharing content shall be agreed by both parties in the contract.

Encourage construction units and engineering general contracting units to use insurance means to enhance their ability to prevent risks.

Article 17.2 of the \"Model Text of Construction Project Engineering General Contracting Contract (Trial)\" (GF-2011-0216) stipulates that: \"The expenses and delayed completion date caused by losses, damages, and injuries caused by force majeure events shall be handled as agreed below: (1) Losses and damages to permanent works and engineering materials, etc., Borne by the Employer ; (2) Injuries to employees shall be handled separately in accordance with their respective employment contract relationships; (3) Losses and damages to the Contractor's machinery, equipment, property and temporary works, To be borne by the contractor ; (4) The contractor's loss of work stoppage,  To be borne by the contractor ; (5) After the occurrence of a force majeure event, the continued losses and damages caused by one party's delay in performing the protection obligations stipulated in the contract, The party delaying the performance of the obligation shall bear the corresponding responsibility and its losses ; (6) When the employer notifies the resumption of construction, the contractor shall submit the plan and estimate for cleaning and repair, as well as the information and report on the progress plan arrangement, within 20 days after receiving the notice, or within the time agreed upon by both parties according to the specific circumstances. After confirmation by the employer, the required cleaning and repair costs shall be borne by the employer. The completion date for resuming construction shall be reasonably extended.

(II) Differences and considerations of risk sharing rules between the "General Contracting Management Measures" and the 2011 edition of the model text

In comparison, the one issued in 2011 The "Model Text of Construction Project General Contract Contract (Trial Implementation)" (GF-2011-0216) stipulates that after the occurrence of force majeure, each party shall bear its own losses, and neither party shall be held accountable. This solution emphasizes more on considerations of fairness. Whoever is responsible bears the responsibility, and the responsibility that cannot be attributed to any party shall be reasonably shared among all parties to the contract based on the principle of fairness, It is a reflection of the principle of fairness in civil law.

The "General Contracting Management Measures" to be implemented in 2020 will The risk of "changes in engineering costs and construction period caused by force majeure" is generally assigned to the construction unit, and the reasonable sharing of force majeure risk between the two parties is no longer reflected. Is this contrary to the expectation of "the general contractor is fully responsible"?

Engineering general contracting is supposed to bear the expectations of the industry, especially the owners, for the controllable risks of engineering quality, safety, construction period, and price, emphasizing the transfer of engineering project risks from the owner to the more professional general contractor. However, Article 15 of the "Engineering General Contracting Management Measures" promulgated this time has a relatively wide scope of responsibility for the construction unit's risk, objectively speaking, from price increases of people, materials, and machines exceeding the scope agreed in the contract, changes in national policies and laws, to unforeseen geological conditions and force majeure, all of which are assigned to the construction unit to bear unilaterally. The author believes that the reason for this may be that this legislation returns to the legal relationship of construction engineering contracting. In any case, the contractor essentially provides labor, submits the engineering products that materialize labor to the client, that is, the employer, and it is unfair to let it bear too much risk beyond its professional capabilities or even unlimited risk. This should also be a phased protection for engineering general contractors with a lack of risk resistance capabilities when the country is cultivating engineering general contracting market players.

The occurrence of this COVID-19 epidemic should be defined as a "force majeure" event according to Article 180 of the "General Principles of Civil Law" regarding "force majeure refers to objective circumstances that cannot be foreseen, avoided, and overcome." Then, according to Article 15 of the "General Contracting Management Measures", the changes in engineering costs and construction period caused by this epidemic are all risks to be borne by the construction unit, that is, the employer. If the construction unit does not pay attention, it may still habitually think that the losses caused by force majeure are shared by each party and no one is held accountable. So, are the construction units that wake up helpless? Of course not. If the construction unit cannot accept it, it should be prevented from the following aspects:

First of all, we must pay attention to the contract agreement.

Article 15, Paragraph 2 of the "General Contracting Management Measures" stipulates: The specific risk sharing content shall be agreed upon by both parties in the contract 。 It can be seen that the sharing of risks between the two parties can be agreed in the contract. For example, both parties can still agree that force majeure is a fair burden.

Secondly, the contract agreement should not, in principle, break through the "General Contracting Management Measures", but if it really breaks through, the contract terms should still be valid, and the contract terms should still be used as the basis for resolving disputes when disputes occur. This is because the "General Contracting Management Measures" was jointly issued by the Ministry of Housing and Urban-Rural Development and the National Development and Reform Commission, and its legal effect level only belongs to departmental regulations; and according to Article 52 (5) of the "Contract Law", what affects the validity of the contract should be "mandatory provisions of laws and administrative regulations." Therefore, even if the agreement on risk sharing rules is inconsistent with the "General Contracting Management Measures", the agreement is still valid.

Thirdly, the agreement on risk sharing rules should Follow the market economic principle that risk is proportional to return. When the construction unit transfers the risk to the general contractor through contract agreement, the general contractor should make reasonable considerations when measuring costs, and include the risk cost in the contract price before negotiating the price.

Finally, all parties should strengthen Use insurance to enhance the ability to prevent risks . Risks are like shadows, and risks that cannot be resolved, such as force majeure, can be decomposed or transferred by means of insurance.