CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian and Liangqian Ying, JunHe LLP
7.2 Assigning Responsibility for the Design and Construction of a Project An owner may either enter into an EPC Contract with a general contractor, or separately enter into a design contract and a construction contract with a local design institute and construction contractor, respectively. EPC Contracts include the following according to market practices: • an Engineering-Procurement-Construction (EPC) arrangement, under which the contractor is responsible for the engineering, procurement and construction of the project, and is fully accountable for aspects such as quality, safety, schedule and price; • a Design-Build (DB) arrangement, under which the contractor is responsible for the engineering and construction of the project, and is fully accountable for aspects such as quality, safety, schedule and price; • an Engineering-Procurement (EP) arrangement, under which the contractor is only responsible for the engineering and procurement of the project, and not the construction thereof; • a Procurement-Construction (PC) arrangement, under which the contractor is only responsible for the procurement and construction of the project, and not the engineering thereof; and • a Lump-Sum Turn-Key (LSTK) arrangement, under which the contractor is responsible for the engi - neering, procurement, construction and installation, commissioning service, and delivery of the project qualified for use. 7.3 Management of Construction Risk Construction risks may be allocated between the par - ties to a contract, considering factors such as bar - gaining power, fairness and justice. For instance, the owner may transfer the risk of price increase to the contractor by adopting the fixed lump-sum price con - tract, or the contractor may agree to indemnify the owner only to the extent of the total contract price. Generally, risk allocation arrangements are valid and recognised by the courts, provided they are not in violation of the mandatory provisions of PRC laws and administrative regulations.
Fixed Quota Pricing Fixed quota pricing means that the construction price, in accordance with the bidding documents, is a total of: • the direct construction cost calculated based on the unit labour price, material price, equipment price and other information formulated by the relevant administrative authorities and the market price for the same during the same period; • the indirect construction cost (including manage - ment salaries, office expenses, employees’ insur - ance); • profit; and • taxes. Bill of Quantities Pricing Bill of quantities pricing means that the aggregate of the price for each component of the construction work, which is calculated based on the integrated unit price and quantity of such component, is determined based on the construction drawing and construction management and engineering skills. Fixed Lump-Sum Price With a fixed lump-sum price, the total construction price is a fixed amount which is not adjustable within the agreed work scope and conditions. Fixed Unit Price This means that the unit price is a fixed amount, which is not adjustable in response to any change in condi - tions or quantities, and the total construction price is the product of the weighted summation of the fixed unit price multiplied by the quantity required. Cost Plus Fee Cost plus fee means that the contractor is paid a fee in the amount agreed between the parties, in addition to reimbursement of the actual construction cost. Adjustable Price With an adjustable price, the contract price is adjust - able subject to agreed conditions, such as an increase in labour or material costs due to inflation or market change, a change in the order, a change of quantities or other geotechnical conditions.
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