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Fixed-price EPC risk
What it is
Engineering, procurement and construction contracts awarded at a lump-sum price fixed at bid stage, with the contractor carrying input cost, execution and schedule risk over a multi-year build
Price-variation clauses may cover some commodities but rarely all, and never cover productivity or delay
Impact on industries
- The contractor absorbs steel, cement, copper and labour inflation across a build period during which prices can move far beyond the bid assumption
- Margins are thin at bid stage in a competitive tender market, so a modest cost overrun eliminates the entire project profit
- Execution capability is genuinely rewarded - a contractor who builds faster and buys better keeps the difference, unlike a cost-plus arrangement
- Client-caused delays require claims and arbitration to recover, which ties up cash for years even when the contractor is eventually vindicated