Contractual incentives in EPC contracts

Abstract

The Norwegian Oil Industry has through the years utilized several different Contract models for offshore projects. In the recent years, the big oil companies are using EPC Contracts to regulate deliveries in the industry. The main focus in the master thesis was the EPC Contract for offshore deliveries and the contractual incentives built into these Contract models. The first section presents the basics to the EPC contract format. Subjects are why the EPC Contract format is used and what consequences it has. Then the different compensation formats are introduced which set the initial incentives of the Contract. An EPC Contract is often built on several different compensation formats depending on the different phases of the project. Incentives are used to align Company and Contractors interest. The next section digs deeper into the EPC Contract and the contractual incentives are the main focus. Important subjects being discussed are: - Definition of success - Incentives mechanisms and what they impose on Company and Contractor - Incentives for Quality in Construction and Installation - A model for analysing the incentive balance of a Contract - An example of an analysis of a real project (anonymised). The discussion brings up the importance of using incentives in the correct way and how the analysing model is used to get overview of how the incentives work together in the total picture of the Contract. The conclusion is that it is important to understanding the total incentive balance of a Contract in order to achieve success in a project.