CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian, Qian Gu and Liangqian Ying, JunHe LLP
Fixed Unit Price This means that the unit price is a fixed amount, which is not adjustable in response to any change in conditions 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 con - struction cost. Adjustable Price With an adjustable price, the contract price is adjustable 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 geotechni - cal conditions. 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 con - tractor 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) arrange - ment, under which the contractor is only responsible for the engineering and procure - ment of the project, and not the construction thereof; • a Procurement-Construction (PC) arrange - ment, under which the contractor is only responsible for the procurement and con - struction of the project, and not the engineer - ing thereof; and • a Lump-Sum Turn-Key (LSTK) arrangement, under which the contractor is responsible for the engineering, 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 parties to a contract, considering factors such as bargaining 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 contract, or the contractor may agree to indemnify the owner only to the extent of the total contract price. Generally, risk allo - cation arrangements are valid and recognised by the courts, provided they are not in violation of the mandatory provisions of PRC laws and administrative regulations. Furthermore, a project owner may require a con - tractor to take out and maintain project-related insurance (such as contractor’s all risks and third-party liability insurance) in favour of the owner. 7.4 Management of Schedule-Related Risk The owner and contractor generally specify a duration for work, including milestone and com -
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