Introduction and definition
This article will analyse the concept of reliance data in EPC Contracts and provide a methodology to identify it. We can define reliance data as follows:
“Reliance data” (also named “rely upon data”) is the data identified in an EPC Contract that the EPC Contractor can take for granted. If this data changes during the course of the design or execution of the EPC Contract, a Variation Order should be agreed between the Employer and the EPC Contractor in order to implement the impact on the performance guarantees, the time for completion and the price.
Context in EPC Contract negotiations
The starting point of many EPC tenders and contract negotiations is as follows: the Owner / Employer provides the Contractor with the data he has in his possession regarding the project together with a specific statement that
«the Employer does not give any warranty as to the completeness, accuracy or fitness for purpose»
of that information. He does this to avoid any claim by the Contractor during the project execution on the basis that the provided information is inaccurate or incorrect. Sometimes the situation is even worse and the Owner / Employer simply tries to avoid giving any information.
In practice, withholding information is counterproductive as it does not enable the EPC Contractor to quote properly, with reasonable efforts. Contractors may walk away from the tender, overprice or underestimate the project’s cost. In the latter case, Contractors often create trouble during the execution phase in an attempt to limit their losses.
Reliance data in FIDIC
FIDIC 1999 Silver Book (Clause 5.1) requires the Contractor to scrutinize the Employer’s Requirements prior to the bid submittal. The Employer shall not be responsible for any error, inaccuracy or omission of any kind in the Employer’s Requirements except for data and information which are stated as immutable or the responsibility of the Employer and also except for data and information which cannot be verified by the Contractor. Having some data on which the Contractor may rely (reliance data) is therefore good industry practice and in line with the contract standards.
The difficulty starts when we want to precisely identify the “reliance data”, “baseline data”, “rely upon data” or whatever word is defined in the contract to introduce the same concept. The data is usually parked in an appendix containing a limited list of data for which the Employer takes responsibility.
Structured approach to identify rely upon data – “black box” concept
During those long contract negotiations, I had some thoughts about a structured approach to identifying reliance data. I came up with a “black box” concept:
- Look at the project (to be executed) as a “black box”.
- Whatever is in the box are the works to be executed. These are defined by a functional, not detailed/prescriptive, specification. Certain performance requirements are to be achieved usually by the time of taking-over. The reliance data should not include any information from within the “black box”.
- On the other hand, this “black box” is somehow connected to and interacting with the environment. It is obviously physically attached to / founded on the outside world. It also receives some inflow. The “black box” can be impacted/shaken-up by the outside environment. The quality, magnitude and characteristics of these foundations, inflows and impacts are data that can, and often should, become reliance data.
Concrete example of identification of reliance data
Let’s run this on a concrete example in order to make the “black box” concept more understandable. In the case of building a hydro power plant, the following can be reliance data:
- Geo-technical baseline data: reference characteristics of subsurface conditions like rock classes (“foundations”)
- Water quality: chemical composition of water quality for which the penstocks and turbine equipment should be designed; maximum water temperature to be taken into consideration for the design of the cooling system; hydrological data (“inflow”)
- Grid connection information: data related to the transmission line and grid characteristics (voltage, frequency). The grid often still has to be expanded under a separate contract (“connections”)
- Maximum wind speed or seismic acceleration coefficient: design requirements that the “black box” will have to withstand (“impacts”).
In conclusion, having some concept of reliance data is healthy for a balanced EPC contract. Both the Employer and the Contractor shall reasonably reflect on this concept and the “black box” approach can be helpful. Jointly, they shall try to minimize the information to those design inputs that are essential and cannot reasonably be verified by the Contractor during the tender stage. This includes information that is
- the result of long-term data series, or
- inaccessible, or
- needing unreasonable efforts and resources to obtain it while the Contractor is not sure to be awarded the contract.
This way, Employers will attract first class Contractors with optimized price levels and avoid conflicts during project execution.
AfiTAC.com is the blog on commercial and contractual subjects for the Project Businesses (Construction, Infrastructure, Oil & Gas, Power & Renewable, Water Supply & Sanitation, etc). Its objective is to stimulate reflection, learning, convergence to balanced contracts and positive dispute resolution. You can subscribe to our newsletter by writing to “firstname.lastname@example.org”. You can also connect to our LinkedIn page. Engagement with the readers is what keeps us going. So, don’t hesitate to exchange with us by commenting here below, liking our publications on LinkedIn and writing to us “email@example.com”.