The Legal Essentials of EPC (Engineering, Procurement & Construction) Contracts in Bahrain
In Bahrain’s infrastructure and industrial development, EPC (Engineering, Procurement & Construction) contracts are a preferred project delivery model — especially for large-scale projects in sectors like oil & gas, power generation, marine works, and industrial plants.
Under an EPC arrangement, the contractor is responsible for designing, procuring materials and equipment, and constructing the project until it is ready for operation. This “single point of responsibility” approach offers advantages in efficiency and risk allocation but also comes with significant legal obligations that both employers and contractors must understand.
This blog explains the key legal essentials of EPC contracts in Bahrain, common pitfalls to avoid, and includes a general illustrative example to demonstrate how issues can arise in practice.
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What Is an EPC Contract?
An EPC contract combines:
- Engineering – Full design and technical specifications for the project.
- Procurement – Purchasing and delivering all materials, equipment, and services.
- Construction – Building, testing, and commissioning the facility to operational readiness.
The contractor delivers the project on a turnkey basis, meaning the employer receives a fully operational facility that meets agreed performance standards.
Key Legal Features of EPC Contracts in Bahrain
1. Single Point of Responsibility
The EPC contractor assumes full responsibility for delivering the project according to the agreed scope, schedule, cost, and performance guarantees.
2. Fixed Price & Time
EPC contracts often use a lump-sum, fixed-price model with strict completion deadlines. Failure to meet deadlines can trigger liquidated damages.
3. Performance Guarantees
Contracts may include guarantees for capacity, efficiency, or output, with penalties if these are not achieved.
4. Risk Allocation
Risks related to design errors, procurement delays, construction defects, and integration are typically borne by the EPC contractor — unless otherwise negotiated.
5. Regulatory Compliance
Projects must comply with Bahraini laws, including:
- Municipal & building regulations
- Environmental approvals
- Sector-specific permits (oil, power, marine, etc.)
- Health and safety legislation
6. Dispute Resolution
Many EPC contracts in Bahrain adopt arbitration clauses, often under ICC or BCDR rules, for efficient resolution of complex technical disputes.
Common Legal Pitfalls in EPC Projects
- Ambiguous performance specifications leading to disputes over whether contractual obligations are met
- Inadequate force majeure provisions, leaving contractors exposed to risks beyond their control
- Poorly defined variation procedures causing cost and time overruns without compensation
- Failure to secure regulatory approvals before commencing works
- Insufficient liquidated damages clauses, making enforcement difficult
How to Strengthen EPC Contracts
- Define detailed technical specifications with measurable performance criteria
- Include a clear variation order process for scope changes
- Set realistic deadlines and milestones, with extension of time provisions
- Establish robust testing and commissioning protocols before handover
- Allocate risks fairly, reflecting each party’s ability to control them
- Ensure compliance with Bahraini procurement and licensing laws
Draft and review agreements with Contract Lawyers in Bahrain.
Example:
A Bahraini energy company awarded an EPC contract for a power plant. The contractor was responsible for full design, equipment procurement, and construction within 24 months.
Midway through the project, the employer requested a significant change to the plant’s capacity. The EPC contract did not have a well-defined variation clause, leading to disputes over whether the contractor was entitled to additional payment and time extensions.
A lawyer reviewed the agreement and found that, while the contract referenced performance requirements, it lacked a structured process for approving changes. The absence of clear procedures delayed resolution, increased costs, and strained the working relationship.
This scenario shows how incomplete contract terms can jeopardize even well-funded, technically advanced projects.
Best Practices for Employers
- Engage legal and technical experts before signing the contract
- Demand clear, enforceable performance guarantees
- Monitor progress with independent inspections and reports
- Keep written records of all variation requests and approvals
Best Practices for EPC Contractors
- Verify all technical requirements before agreeing to price and timeline
- Ensure suppliers and subcontractors meet contractual obligations
- Maintain transparent communication with the employer
- Document all instructions, changes, and approvals to protect against disputes
In our previous blog on Winning Construction Delay Disputes in Bahrain: A Case Study Approach